One of the definitions of insolvency is being unable to pay your debts as they fall due. Many profitable businesses simply run out of cash or over extend themselves when growing. We are often approached for assistance by business owners seeking to wind up their business. Sometimes this is just a knee-jerk response to a crisis – usually a cash flow problem. For many reasons it may not be the solution they really need or want. Such challenges can often be overcome with the right advice in conjunction with a turnaround procedure that would best address their difficulties.
I am not advising any trader continues to trade when they know, or ought to have known they are insolvent, but suggesting planning is always the key element to making the right decisions and sometimes the conclusion will be that the company simply needs more cash.
Any application for finance should be prepared and presented to the right lender. Understanding what lenders are looking for and who is lending to what sector can be key in getting finance. We work closely with various brokers and even with a poor credit rating, finance can be found, providing the information is presented correctly.
The funding market has some interesting new products available so I listed some new and old as an aide memoir:-
Crowd funding and Peer to Peer lending
New and changing rapidly but mostly for business with at least 2 years accounts and I am advised by Rob Warlow of The Business Loan Service that some funding platforms now include sole traders and partnerships.
Merchant Cash Advances
Where credit card or debit cards are used regularly, monies are advanced and repaid by taking a percentage of the merchant’s daily card sales, until the loan and interest is repaid – often over a 12 month period.
Listed on the UK Business Angel Association website they bring their skill and cash to the table for a percentage of the equity, but some can offer a combination of debt and equity finance too.
Available where the pension fund is more than £50,000 and the individual is a director of a company. The main advantage is that no Personal Guarantee or debenture is required.
Available to sole traders, partnerships and limited companies. All sorts of assets can be financed, predominantly plant and machinery, equipment or motor vehicles. Accounts will be required to demonstrate affordability of repayments and valuation of the asset sort.
Secured on any type of premises. Bridging loans should only be a short term from 1 to 12 months.
Mostly available from banks, these may be for anything the business requires, providing the lender can be convinced the loan will be repaid. The loan will be payable over a specific period of time and if for the purchase of equipment will not be for longer that the expected life span of the item.
If the loan is for a company, expect it to be accompanied by a personal guarantee for the director/shareholder or someone of substance who is prepared to offer such guarantee.
Available from a wide range of lenders to buy business premises, extend or refurbish current premises or to release equity. Finance will be available for the whole gamut of business properties and the loan will be secured on the property.
What needs to be organised before applying are a Financial Statement, management accounts a Business Plan and the loan to value must stack up. Usually lenders will advance between 65% and 80% of the purchase price or valuation.
Used to refurbish or finance a development, loans can be flexible but typically at 65% of the Gross Development Value with 70% of the purchase/construction cost.
Short Term Loans
Alternative lenders give quick decisions based on the borrowers credit file. These always have a high interest rate but if used correctly and paid off swiftly can be just what is required.
Sometimes necessary but will always require personal guarantees these days.
Invoice Factoring and Invoice Discounting
The difference being: Factoring is where the lender takes control of collection and Discounting is where the borrower collects the monies.
Unlike traditional factoring, Spot factoring will allow a specific invoice to be factored and not the whole ledger. It avoids the obtaining of a floating charge over all company assets and is based on the providence of the debtor and not the company obtaining the finance.
Still available depending on the area of the country you are based and mostly to develop the business in a way being promoted by the Government. Not really a tool we use often because they can take a long time to obtain.