Gary Cain, Director of Reach Commercial Finance, on how to source the most appropriate finance for SMEs.
Speed and flexibility are the key drivers at the moment as Covid-weary businesses look for funding options to plot a way out of difficulties, or keep on track with longer-term goals.
While economic certainty is in short supply, interest is high in a sensible approach to financing the future. Invoice finance, plant and machinery finance, property finance and cashflow loans are keeping us busy and we continue to be bombarded with CBILS enquiries.
This represents a good pick up for brokers, as back in March enquiry levels were down as most SMEs – quite rightly – were busy approaching their banks for a CBILS or BBL solution.
Since then, perhaps due to a lack of response, and individual company circumstances moving in the wrong direction, we have seen a real uplift – especially in the last four to six weeks.
Encouragingly, independent lenders as well as banks are upbeat and positive about their prospects for lending and keen to do new business for the right cases. Our job is matching up the most appropriate lender for each of those cases.
Good cash managementis critical, especially now, so the principles of credit control need to be front of mind for all SME business owners.
There are still various government support schemes around which is a cost-effective way of bringing in additional cash, and giving good businesses that all-important breathing space.
Business Interruption Loan Schemes
As time of writing, the CBIL, CLBIL and the BBL schemes have been extended to 31st March 2021. All these allow you to continue to apply for top up monies, but it’s worth noting that the BBL is capped at whichever is lower – 25% of turnover or £50k – and whilst you can top up, you must repay the BBL with any CBILs. You cannot have both.
Start-up Loans
This scheme is available to new businesses, including those less than two years old. It is a personal loan for business use with a minimum lend of £500 up to £25,000, over a one-five year term, at 6% APR. There are no set up costs or early repayment penalties.
More than 1 director (up to 4) can apply
Invoice Finance Facilities
Financing the receivables via an invoice finance facility is a great way to inject working capital into a business, releasing the cash tied up in the debtor book. This can be set up via a whole turnover agreement or be selective focused on single debtors or specific invoices.
It is a very effective way of getting cash into the business as it shortens the gap between raising an invoice and getting paid.
Whether this is a confidential facility – allowing a business owner to maintain control of their own sales ledger management function – or a full factoring agreement, which outsources the credit control to a specialist, this is a proven route to generating cash in a business.
Also, right now many lenders operating in this area are able to offer CBILS alongside the invoice finance facility.
Equity Investment
If you have an innovative business with the potential for fast growth but a shortage of funding, equity investment might be the answer. We know that business owners can be reluctant to give up equity, but it is a well-trodden path to help with growth, or assist with a stressed or distressed trading issue.
We typically deal with owners requiring anything from £50k to £1million, giving them access to potential funders that would otherwise be hard to find. This is based on compiling a detailed assessment of our investors’ criteria and matching the requirement with an appropriate funder from our panel. We can also recommend a specialist from our advisor panel to lead the transaction.
For more information on state support schemes go to the gov.uk website https://www.gov.uk/business-coronavirus-support-finder
Reach Commercial Finance is an independent financial brokerage with a wide range of experience in helping limited companies and corporate entities secure funding. It is part of Leonard Curtis Business Solutions Group.