It is a fact of life that at some stage almost every business will have a reason to borrow money. Whether you are a Company, Sole Trader or Partnership, well established or a new business there are literally hundreds of lenders.
Alternative Finance providers can arrange finance in cases where High Street lenders say no. By using a regulated finance broker to search on your behalf you can take advantage of the best rates and terms in the market place.
Finance is available for:
- Equipment or Vehicles
- Commercial Property
- Property Development
- Bridging Finance
- Buy to Let Mortgages
- Invoice Finance
- Factoring
- Finance Leases
A finance lease facility gives you all the benefits associated with using the asset while paying a minimal monthly cost. Under this type of agreement 100% of the cost of the asset is funded over its percieved useful life.
- No deposit required
- Payments are 100% tax deductible
- Total Solution Finance including ‘soft costs’ (installation, services, maintenance, software etc).
- Term between 1 and 7 years dependent on the asset
- VAT is spread throughout the term of the lease
- Fixed rate throughout the agreement.
Operating Leases
Mainly used for funding larger assets, an operating lease gives you all the benefits associated with using the asset without the burden of ownership. Rentals over the term are low as they are based on the purchase cost minus the anticipated future value (RV or Residual Value) plus interest.
- No Deposit
- Term of the agreement is shorter than the useful life of the asset. The asset is never owned by the borrower although continued rental after the initial term is possible
- Low rental during the term due to the RV which aids business cash flow
- Off balance sheet – 100% Tax deductible
Structured Finance
Your business might be at the level where it needs a complete overhaul over how it operates financially.
You might need a more specialist product to aid with debtor days like invoice discounting or factoring, or help in sourcing funds for a merger or acquisition.
We offer commercial loan programs to suit nearly every borrower and property type. Successful commercial financing is dependent upon the availability of competitive funding. Our commercial loan programs are fast financial solutions for commercial property owners and investors.
Buying property to let has become increasingly popular in recent years and low interest rates have made it more affordable, and rental income has seemed attractive compared to what you could earn on other investments.
Whilst there is no direct tax relief on buy-to-let mortgages, you can offset interest payments on your mortgage against tax on rental income, along with other fees such as agents fees and maintenance costs.
Factoring
Around 10,000 UK businesses go to the wall each year because cash they are owed is paid too late. One way of plugging the hole in cashflow while you await payment is factoring.
Put simply, factoring allows you to sell the debt you are owed to a third party, which pays you a portion of the debt you are owed in advance of collecting the full amount. The best ways to avoid the problem are to agree payment terms in advance, ensure invoices are clear and have adequate credit control procedures.
But many businesses need external expertise when it comes to turning orders into cash. This is when factoring service can help.
The main advantage of outsourcing debt is that it is an easy way to give your cashflow a shot in the arm. It can also help ensure you spend less time on credit control. An added bonus is that customers may pay up more readily to a factor.
How it works
The mechanics are quite straightforward. As soon as goods are delivered or services completed, the business produces an invoice. At the same time, a copy of the invoice is issued to the factor. From that point on, the factor takes responsibility for chasing payment and paying the business up to 80% of the value of the invoice up front. Once the factor has received payment, the balance becomes available to the supplier.
Far from being an expensive luxury, the cost of using a factor compares favourable with other sources of finance, such as overdrafts.
The charge comprises two elements. The first is a discounting fee applied to the cash transferred from the factor before the invoice is paid. The second fee depends on the level of service and the number of invoices the customer accounts, but usually works out at between 0.75% and 3% of annual turnover.
Leases
What is Leasing?
Leasing is a financial contract between you, the customer, and a leasing company. You will be committed to repay a given number of fixed rentals for the term of the contract. If the equipment fails to work you must not stop paying the rentals as this breaks your contract with the leasing company. You must advise the leasing company at once and ask them to resolve the problem.
How often do I pay?
You pay monthly or quarterly over a set time by direct debit.
What items are suitable for leasing?
Most items of equipment in normal use within the business environment may be obtained through leasing.
Some typical items are listed below.
- Plant and machinery
- Business cars
- Commercial vehicles
- Agricultural equipment
- Hotel equipment
- Medical and dental supplies
- Computers, including software packages
Office equipment
What are the advantages of leasing?
- Immediate use of the equipment without paying the full cost price therefore assisting cash flow.
- Leasing is entireley separate from any bank lending or other credit arrangements you may have and by leasing equipment your overdraft or bank loans are free to sue in the running of your business.
- Because you lease costs are fixed for the duration of the agreement, you can include each years rentals in you annual budget and remove any guesswork.
- You will be able to offset all the lease rentals that you pay in any year against your taxable profits for that year. Therefore you get full tax relief on any leased equipment and this should reduce your tax bill.
Buy to Let
The Basics
The main difference with a buy to let mortgage is that the lender can take into account the rent you will earn, as well as your income from your job. Some lenders allow you to add the rent to your salary whilst others base the loan entirely on rent.
Borrowing rules
How much you can borrow depends on the lender, but the maximum ranges from £150,000 to £1m per property, and the most lenders will lend is 85% of the property price. This means you need a deposit of at least 15%. Deals become more competitive if you can put down 20% or 25%.
A lender will also take into account how much money you earn on the property. The formula varies but as a rule the rental income shoud be between 130% to 150% of the mortgage payment. So if your monthly repayments are £500, the income you should be between £650 and £750. Some lenders will lend a multiple of your salary, say three times, plus half the rental income.
Tax Breaks
There is no direct tax relief on buy-to-let mortgages, but you can offset interest payments on your mortgage against tax on rental income, along with other expenses such as agents’ fees and maintenance costs.
Factoring/Invoice Discounting
Overview
Factoring provides cash to your business with no time delay issuing invoices as well as sales ledger and collective services.
For many companies outstanding invoices are their largest asset. Most companies do not have the resources and information systems to efficiently collect their outstanding invoices. Factoring can be a smart alternative to transfer the debt collection and ledger management to a factor and almost immediately get cash advances with the issuance of an invoice. The cash can be used to reduce your own debt or for investments to grow your business.
How it works
Factoring works as follows: The factor fully manages your sales ledger and provides you with credit control and collection services of all your outstanding debts. The invoices you issue upon a sale are sent to the factor who typically advances up to 80 to 90% of the invoice amount to you. The balance, less charges, is paid when the customer makes payment directly to the factor. The service is disclosed to your customer who typically receives a letter from the factor, or attached note to your invoice, containing payment instructions to the factor.
Funds are typically released to you within 24 hours of issuing the the invoice.
There are typically two costs involved: a service charge expressed as a percentage of sales factored and an interest charge for the cash advances. The service charge, covering sales ledger management, collections services, and if you wish, bad debt protection can range between 0.60% and 3.0% of turnover. The main considerations in determining the service charge are your annual turnover, number of invoices and number of customers. The interest charges calculated on the daily useage of funds is typically comparable to normal secured overdraft rates.
Choosing between Factoring and Invoice Discounting
If you business is already large enough to afford the staff and information systems to efficiently manage and collect your outstanding invoices you may want to consider an invoice discounting rather than factoring service. It is identical to factoring except that the sales ledger management – the collection responsibility – remains with you. The service is undisclosed to the customer.
Again there are two costs: An administration charge, either a flat fee or a percentage of turnover and an interest charge for the cash advances.
Rule of thumb: if your business has an annual turnover of more than £1 million and its own accounting system, you may want to look at invoice discounting.
Commercial Mortgages
Overview
A commercial mortgage is most likely the best way to finance the purchase of land and/or buildings for your business! It probably provides the most flexible and affordable financing solution. A commercial mortgage is a specialised commercial loan.
Why should I purchase property instead of letting?
Purchasing property is a large decision for any business. There are several advantages and disadvantages that should be considered before making your decision.
Advantages include:
- Fixing your overhead costs. When you finance your purchase with a mortgage you have a repayment schedule that sets your fixed expense each month.
- Potential asset appreciation.
- Potential to sublet. If you purchase more space than your company currently needs, you could sublet a portion of it until you need the space.
- Mortgage payments may be cheaper than rent. When you set your repayment schedule you know what your payments will be in advance. When you rent your property, you are exposed to market conditions that may increase your rent to above what your mortgage payments would have been.
Disadvantages include:
- Harder to relocate. If you have a lease and decide to change locations the process is relatively simple. When you own the property, you need to determine if you should sell the land or find a new tenant.
- Drain on cash. A mortgage will not provide 100% of the financing needed to acquire the property. You will need to use your current cash to finance a down payment and pay for any related expenses.
- More management responsibilities. When you let the property, the landlord is responsible for the upkeep and security of the property.
How should the mortgage be structured?
If possible, you should form a separate business entity to lease the building to your operating company. This separate entity should then arrange for a non-recourse mortgage for the purchase of the property. This should protect your operating business if you default on the mortgage. You may wish to consult your accountant or tax advisor.
How can I improve my chances of getting a mortgage?
Be prepared to demonstrate why you have a solid chance of repaying the mortgage. The lien on your property adds security but the lender will still base their decision on your ability to repay the mortgage. It will be extremely beneficial to be able to show the lender a history of your earnings and a projection of future earnings. Also expect the lender to arrange for a property appraiser to estimate the market value of the property; this will help the lender feel that the property is sufficient collateral for the mortgage.
Who is responsible for the repayment of the mortgage?
The legal structure of your company will determine who is responsible for the repayment of the mortgage and who will be liable if it is not repaid. If you are a sole trader, you bear all the responsibility and potential liability. If you have formed a partnership, all of the partners involved are jointly and individually responsible. If you are a limited company, the Directors may be liable if the mortgage is not repaid.