The banks are still lending although the present situation has made them more cautious. Gone are the days where a round of golf with your bank manager led to your loan request being granted. Now banks have strict hierarchical structures for dealing with loan applications. You need to disclose the purpose of the loan – this determines which package you apply for. You also need a solid business plan with cashflow forecasts; copies of your personal and business bank accounts; details on other loans you or your business might have; any potential bad debts.
Comparison websites such as Moneyfacts (http://moneyfacts.co.uk/business/default.aspx) and MoneySupermarket will help you decide which banks, other than your own, you might wish to approach.
Invoice factoring and discounting
The next thing to consider, assuming you serve businesses who pay on invoice rather than consumers who pay on demand, is invoice factoring and invoice discounting. Invoice factoring differs from invoice discounting in that with factoring, the business (you) sells its sales ledger at a discount to a third party in exchange for being paid up front, albeit less the discount taken by the factor.
Although faster cash is the ‘pro’ here, the ‘con’ is that some might consider that businesses that use these methods are in financial distress and might be reluctant to make supplies. Further, invoice discounting can be expensive compared to an overdraft or loan; factoring, on the other hand, could be more competitive since there are a number of firms who offer the service. Invoice discounting or factoring tends to be available to businesses with a turnover of £500,000 who have a track record.
Business Links and government help
Often overlooked is the government backed Business Link network. Regionally based, this agency covers England, but there are sister organisations for the rest of the UK – Enterprise Wales, Invest NI and Highland and Islands Enterprise / Business Gateway for Scotland. On the main website – www.businesslink.gov.uk – there is a wealth of information on training, grants, loans and other help available.
It’s also through a portal – ‘Real help for businesses now’ (http://www.businesslink.gov.uk/realhelp/finance) – that businesses can access help that the Government announced on 14 January 2009 including:
- The Enterprise Finance Guarantee Scheme to guarantee bank lending,
- A Capital for Enterprise Fund to invest in small businesses which need equity,
- A Working Capital Scheme that secures short term bank lending to companies with a turnover of up to £500m.
It’s the Enterprise Finance Guarantee Scheme which will probably be of greatest interest here because it guarantees lending to viable credit worthy small firms with an annual turnover of up to £25m, which are looking for loans of up to £1m for a period of up to 10 years. Other banks may join the scheme later. As the loans are guaranteed by the Government to the banks, for a fee, any loan application that succeeds will probably have a slightly higher cost.
But there are other Government backed programmes that may be worth investigating and the Business Link website will point you in the right direction for all of these. Not only can the site indicate what is out there, but it offers a searchable directory of specific grants and programmes.
Sale and leaseback
Do you have assets that you could sell? If so, consider sale and leaseback. Here the business sells the asset to a third party, receives the cash value, and then retains the use of the asset in exchange for paying a rent. Land and property – your premises for example – are most widely covered by these arrangements, but any capital item that can be rented for a decent length of time could be the subject of a sale and leaseback. There are tax consequences of sale and leaseback so good accounting advice is necessary.
Don’t forget the Business Payment Support Service that HMRC are offering to all businesses who have a cashflow problem and who may have difficulty paying their taxes. The BPSS covers any tax that is owed to HMRC; that applications to delay payment must be made in advance of the tax falling due; and that the arrangement to pay must be reasonable. If granted, and a large number are, on the spot, you’ll not incur any black marks or penalties, only very low rates of interest.