Women and Business Finance

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Research by a national newspaper revealed that just 9% of all start-up funding went to women in 2016.

Further exploration into the reasons at a business breakfast run by the paper produced speculation that perhaps women lacked confidence, or perhaps lacked business education.

Among the issues raised was that there is still a perceived gender imbalance in schools, where the take-up of STEM (science, tech, engineering and maths) subjects, for example, was still significantly higher among boys than girls, despite heavy promotion of the STEM programme for more than ten years.

It may be that this feeds into the perception that fewer women are likely to consider starting up a business in sectors using this kind of knowledge and skill.

Whether it is a matter of perception or fact, it is hardly a good thing that the economy may be losing out on around 50% of the innovative skills, potential and ability that could be available.

In reality there are now plenty of women running small businesses and the number has been growing fast. The most recent research by Aston University, Birmingham, found that the proportion of working-age women that went into business rose by 45 per cent in the three-year period between 2013 and 2016, compared with 2003 to 2006.

Also, according to Emma Jones, founder of Enterprise Nation, a support group for entrepreneurs, 63 per cent of its 72,000 members are female, and about two-thirds of those attending its events are women.

But whenever entrepreneurship is a topic in the media there is a tendency to focus on male entrepreneurs, such as Richard Branson, Alan Sugar, or Mark Zuckerberg and this reinforces the idea that few women go into business. London mayor Sadiq Khan stated recently that in his experience more than two thirds of women were unable to identify a female role model in their field.

More concerning is the evidence from other research that a substantial majority of female business owners feel they are not taken seriously by either investors or financial services, some even saying that they had been treated unfairly, leaving them with no option but to fund their ventures from their own pockets.

Retail analyst Mary Portas has gone on record to say she had experienced this gender bias many times throughout her own career, on one occasion being told by a CEO that they would only speak to her male business partner, despite her owning 90% of the business.

While funding for entrepreneurs as a whole almost doubled in 2017, the proportion of all funding invested in businesses with a female founder fell from 14.9 per cent in 2016 to 8.5 per cent last year.

Another suggestion, that perhaps those women who do go into business have done so from a situation where they are not their family’s main breadwinner and therefore there is less pressure to succeed or there may be more financial help and support from family is hardly credible in this day and age.

The reasons why women do not seem to be benefiting from the advantages that finance facilities can provide not only in funding but also in support and advice to start and grow their businesses may be a matter of conjecture.

But Gipping Finance most definitely does not discriminate between genders. We welcome approaches from any entrepreneur who needs finance and support and comes to us with a sound idea and business plan.

Pain points when growing your business?

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The financial challenges that come at various times in the business lifecycle are generally called “pain points”.

The first “pain point” is at the start-up stage.

Many people dream of becoming their own boss and starting a business that allows them to fulfil a particular passion, but it takes hard work and a good deal of careful preparation and research to raise enough funding to turn the dream into reality.

One of the biggest problems for start-ups in accessing finance is that they can produce little or no financial accounting history to support their proposals.  They usually need to produce a business plan supported by evidence that they have researched and identified a sufficiently viable potential market for their product or service, but they may need more funding than they have currently been able to save.

In addition, the terms on which they can borrow may come with very strict conditions, such as additional security and Directors’ Guarantees, so that the lender is protected should the business fail.

The specialist lender Aldermore has suggested that one way for a start-up to save towards its initial costs would be a Government-supported Entrepreneur ISA.

Under its proposal the Government would provide a guaranteed 25% matched bonus to deposits of between £50 to £200 per month. Aldermore suggests a cap at £3000. The ISA would be targeted specifically for entrepreneurs to help them build up the capital for creating new small businesses.

However, arguably a cap of £3,000 is far below the likely funding needed for even a small start-up, taking into account the likely costs of overheads, essential equipment, essential marketing and, depending on the nature of the business, perhaps transport.

It may, in any case, be more cost-effective for the start-up to use asset finance to either lease or purchase equipment rather than using its own capital and with the asset providing some security to the funder a case may be viewed more sympathetically.

Assuming the new business is successful, there will come a point when its owner will want it to grow bigger, and this, too, presents its challenges.

Here, there may be further pain points. They include the problem of getting clients to pay invoices on time, leading to cash flow problems and having insufficient funding to take their business to the next level.

Aldermore has carried out research which found that almost seven in 10 (68%) of Britain’s entrepreneurs say that they have experienced financial barriers to growing their business.

It has a second suggestion, a Small Business Savings Allowance, which would allow sole traders and small businesses to earn up to £4,000 of income from savings, tax-free.

Again, this may be setting the bar too low.

Equally, applying for a commercial loan for expansion would provide money up front for growth with repayments spread over a period of time and financed from the increased revenue coming from the business’ growth. Releasing equity in assets that are owned outright could be another option. Late payment can be avoided by using factoring or invoice discounting services.

Although it is inevitable that businesses will have hurdles to overcome, there are ways that they can be mitigated by anticipating them, by careful cash flow management and by seeking the right financial help.

Time for SMEs to look more closely at alternative finance sources

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In mid-January the free business newspaper City A.M. quoted the MD of a business finance group, Peter Alderson, on the prospects for SMEs in 2018.

He said: “For many business owners across the UK January is a time to consider the year ahead….”

Alderson observed that access to finance remained a critical consideration for UK small businesses and “more are exploring financial options outside of traditional bank offerings that can support the level of business development needed to compete in new tech and online spaces.”

More recently, Alderson’s observation was backed up by Keith Morgan, CE of the British Business Bank, who said that more SMEs were diversifying their sources of funding, with a 79% increase in equity investment, a 12% jump in asset finance and a 51% rise in peer to peer lending.

The website moneynet.co.uk recently cited a quarterly report from Close Brothers whose research of 900 small businesses had found that just 17% of UK SMEs felt their high street bank was well enough equipped to offer them bespoke advice and only 24% of the respondents felt that banks offered a range of finance products that suited their needs.

Previous Close Brothers reports had revealed that only 26% of SMEs thought their bank could meet their funding needs.

Nevertheless, as the business and finance website also pointed out, many SMEs are still unaware of all the finance options that may be available and tended to go to the banks, where 50% of first-time borrowers were rejected.  A third of SMEs, it said, reportedly gave up after their first rejection.

There has long been a perception that despite various Government initiatives over the years, the major High Street banks remain reluctant to lend to SMEs, or that their interest rates are too high.

More significant for SMES, however, are the recent announcements by several banks that they planned to close branches, from RBS announcing the closure of 259 (including both RBS and NatWest branches) to Lloyds closing 49 and Yorkshire Building Society planning to close 13 branches.

Many of these are in rural areas and small towns, and this is a significant inconvenience for SMEs, such as local retailers and suppliers of services, who often rely on their local branches for face to face discussion about their businesses.

When it comes to applying for finance via the High Street banks as compared to alternative providers of asset and other finance, the crucial factor is turnaround times for processing applications.

Here, alternative lenders easily beat the banks, which can take up to six weeks to come back with an answer.

Typically, the alternative lenders will take a maximum of two weeks and in most cases businesses will get a response within one or two days.

Perhaps Mr Alderson and others are correct that the message is getting through to SMEs that there are other alternatives and more are exploring these options.

10 things to consider when applying for finance

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For those who are considering perhaps upgrading or replacing equipment in the New Year and how to finance it, we have put together a list of 10 questions you might want to think about before you take the plunge.

1.       WHAT ARE THE REPAYMENTS AND CAN YOU AFFORD THEM? This is a straight forward question – does your cash flow allow for these payments or will the item being financed generate sufficient revenue to pay for itself? However, circumstances can change in a business, perhaps with increased competition or the loss of a customer, both of which can affect the cash flow.  It is also worth remembering that should the equipment break down you will still have to make the agreed payments while it is being repaired.

2.       ASK WHETHER PAYMENTS ARE FIXED OR WHETHER THEY CAB BE CHANGED. If you choose finance where the interest rate is variable, payments can change with rates’ rise or fall. Although it rarely happens there is the possibility that VAT rates could be changed which would affect your repayments if your agreement includes paying the VAT monthly.

 3.       FIND OUT WHAT THE TOTAL DEPOSIT IS whether it is a lump sum or a percentage of the asset’s value or a multiple of the normal repayment (could be the equivalent to 3 or 6 monthly payments). Are there any fees payable with the deposit?

 4.       HOW IS VAT TREATED IN THE FINANCE AGREEMENT? This is more of an issue for businesses not registered for VAT. With a purchase agreement you have to pay the total VAT up front but with leasing you pay the VAT as you go along. If you are VAT registered, you could also explore whether a VAT deferral is available whereby paying the VAT can be delayed for up to 3 months.

 5.       DO YOU WANT TO OWN THE ASSET AT THE END OF THE FINANCE AGREEMENT? If, for example, your business is in a competitive sector where technological change is fast-moving, owning the asset at the end of the agreement may not be required as it will need to be upgraded to the latest equipment at this point in which case a lease agreement might be preferable. Where an asset will outlast the agreement, purchase would probably be the better option.   

6.       WHAT IS THE USEFUL LIFE OF THE ASSET? This question has a bearing the length of the finance term  for the asset you are considering. Plainly if the asset will only last for two years, the financial terms of the agreement need to reflect that, and you would not take out a 5-year term.

 7.       WILL THE LENDER REQUIRE ADDITIONAL SECURITY? Some lenders may make agreements conditional on the provision of a director’s guarantee.  If so, you may be asked to engage a solicitor to explain the obligations you are signing up to and have them confirm to the lender that they have done so. It is also important to check whether the Director’s guarantee is limited to the lifetime of the finance agreement or does it continue indefinitely.

 8.       ARE THERE ANY TAX ADVANTAGES TO BUYING RATHER THAN LEASING? Your advisor may be able to help you to access any Government incentives that may be available and what, if any, additional tax allowances might be applicable, which is often the case with the purchase of a piece of equipment.

 9.       ARE THERE ANY GRANTS AVAILABLE TO PURCHASE EQUIPMENT? For some business sectors, especially in regions where the economy is in need of more businesses perhaps to increase job availability, or to stimulate new industries, there may be grants available to help with the finance.  The local LEP is a good source of information about what is available.  It is certainly a question to consider.

 10.   AND FINALLY, when considering the terms of any finance agreement you should ask whether it is possible to settle early.  If your circumstances change so that you are you able to pay off an agreement before the end date are you able to and if so what penalty, if any, would you incur?

Is your finance provider NACFB Registered?

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The National Association of Commercial Finance Brokers is our professional trade body with a focus on providing the best asset finance advice available to help SMEs.

We advise any business looking for asset finance and using a broker for the purpose to ask whether the person they are using is a NACFB member.

It goes without saying that Gipping Finance is a member, along with 1600 other commercial finance brokers.

Not only does membership ensure the highest ethical standards but it also means individual brokers can access expertise from a network of trustworthy professionals to support their own services.

Why is NACFB membership important?

Firstly, members sign up to a code of practice established in 1992. The organisation requires members to have Full or Limited Consumer Credit Permission, Professional Indemnity Insurance, a Data Protection Licence, and a good track record with nationally recognised lenders.

Those who are new to commercial broking are limited to Associate membership but only for a maximum of two years. Once they have a track record they undergo a strict checking procedure and are then required to upgrade to full membership.

That means members have to follow strict standards of business practice, which can only benefit the SMEs they are helping.

The NACFB also operates a dispute resolution council, a recognised complaints and grievance procedure for members’ customers and clients and a disciplinary process to ensure members do not use unacceptable working practices.

Members must also complete a minimum of 35 hours of Continuing Professional Development (CPD) each year, providing regular training and updates on any industry changes.  

All of this means that any SMEs using members’ services have an extra layer of protection and can be assured of a highly professional service from brokers who have a large network of national resources to draw on.

To find out more about the NACFB click here

Choosing the right finance for your business

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Finance is one of the most important considerations when starting a new business or planning to enlarge an existing one.

You need to be sure that your business will be resilient enough to be able to meet the increased liabilities but equally it is important to not borrow more than your projections suggest that the business needs to operate at near-full capacity.

There are many finance options and it can be difficult to know the right one to choose when you need equipment or vehicles for your operation.

The two most common asset finance choices are Hire Purchase or a Finance Lease.

Hire Purchase

Hire Purchase (or HP) is one of the oldest forms of asset finance.  With HP you pay a deposit, then monthly payments for the agreed period at the end of which the asset is your property.

The deposit is usually a percentage of the purchase price plus all the VAT, where applicable, and the repayment periods are typically in the range of two to five years, although sometimes, particularly with larger and more costly assets, the HP period can be longer.

HP is typically used for the purchase of machinery and vehicles, or any other physical asset where there will be a residual value after the end of the borrowing period.

Finance lease

With a finance lease, you are paying for the use of a piece of equipment, but you will never actually own it.  It is often used for items such as office equipment. 

With this type of finance, you pay the VAT on each payment as it falls due rather than at the outset as with HP.

The initial payment can be a percentage deposit or, more usually, a number of monthly payments.

While there is no ownership at the end, lessees do have an interest in the assets as they receive a percentage of what the asset is sold for; typically between 90% and 99%.

Of course, lessees could carry on leasing on a secondary/peppercorn rental which is usually equivalent to one monthly payment paid annually in advance.

What about operating costs?

There are times in a business where there is a cash flow problem, sometimes because the business has an increase in orders but not quite enough to cover the materials costs.

If you cannot raise money on an asset your business already owns the options for finance include invoice discounting, where a business can get an advance on its orders. Another possibility is a commercial loan either from the bank or from a specialist finance provider.

It may be better to go to a specialist lender for a commercial loan if the conditions the bank imposes are likely to prove difficult or impinge on other lending, such as an overdraft. The specialist lender will also impose conditions, most usually in the form of a Directors’ Guarantee, something we have covered in another blog.


Choosing the best finance option for your business can be a challenge and it can be helpful to talk things through with an adviser who can give you an objective assessment.

An opportunity for Finance Companies to diversify?

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Recently the Federation of Small Businesses (FSB) warned of a potential threat to SMEs’ growth and productivity that could result from the UK’s decision to leave the EU.

Its research had revealed that 78% of the SMEs it had surveyed, particularly those in the UK’s less economically developed regions, had used business support services including regional and local funding, to help them to grow.

Much of this money, accessed via agencies such as Local Enterprise Partnerships (LEPs) was from EU-funded schemes. This money from the EU’s Local Growth Fund is expected to be exhausted by 2021.

At this point, said Mike Cherry, FSB National Chairman, small businesses across the country will be “staring into a business support black hole”.

The FSB research also found that of those that had applied for such funding 89% had been looking to grow their businesses by 20%.

According to the FSB SMEs accounted for 99.3% of all private sector businesses at the start of 2016 and for 60% of all private sector employment, or more than 15.7 million people.

Although a significant number were sole traders (60%) it is reasonable to suppose that a significant number of them will have ambitions to grow.

could finance providers step into the breach?

Without sources of funding for SME expansion and growth the implications for future UK prosperity and job creation post Brexit are therefore not encouraging. 

Of course, at this stage, when negotiations with the EU have barely begun, it is not clear what, if any, plans there might be for alternative funding in the future.

However, given the time it takes to set up such mechanisms perhaps finance providers should start looking at opportunities there may be for them to diversify and contribute to growth funding to fill the gap.

Could there be an opportunity for them to not only grow their own businesses but also enable their future SME clients and customers to also grow and develop?

Should a business invest its own cash or use finance?

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Funding a new business start-up or taking it to the next level of growth is going to mean an injection of funds.

It may be that it has some cash available but there are other finance options that may be a better option.

There are three main options for funding business growth, equity investment, cash and asset finance. Each has its own benefits and disadvantages.

Equity

Offering investors a share in the business in return for investment money is another alternative.  It can mean that the business has access to experienced people who can offer valuable advice and guidance, support and help. The downside is that the business owner may have to cede a significant amount of control and also that investors generally take a larger share of the profits than is the case with other forms of finance.

Cash

Using cash to buy stock or materials or equipment means that the business will take on no debts and will own all its assets.

However, it may not be able to grow as quickly as it hopes because it will have less money to invest in marketing and promoting itself. Equally, if its order book is growing quickly it may find itself with a cash flow crisis where it cannot accept new orders because it has insufficient cash to invest in additional stock, materials or staff to be able to meet those orders.

Finance

Realistically if a business is investing its own cash it should expect the return on its investment to yield about 15% a year if it is to be able to fulfil its plans for growth.

When finance is available to buy plant, vehicles or equipment at around 5% interest it makes more sense to keep the cash as a contingency reserve or to help the company to grow more quickly.

Using asset finance means the business has an affordable loan over a fixed period at a fixed repayment rate at the end of which the assets belong to the company.

Moreover, loan repayments for asset finance can be used as a business expense to reduce the tax bill and the business will not be risking its own cash on buying assets, such as cars, that will depreciate over time and earn it no money.

Why use a finance broker?

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When the time comes to renew our house, car or other insurances, although we are encouraged to shop around for the most competitive quote we are likely to choose to ask an insurance broker to do it for us because they have the expertise when it comes to the finer details and access to a choice of products. The broker will therefore be able to research the market to which they have access to find the best deal to fit your particular circumstances.

The same principle applies when a business is looking for asset finance.

Your broker will spend time with you to understand your business, its constraints and needs and your plans for its future. Again, your business finance broker will be able to search among finance providers to ensure that you have the right kind of finance for either buying or leasing the equipment you need.

But sourcing the right asset finance is not only about getting you the most competitive price. Repayment terms, initial investment and ensuring the most suitable facility are all considerations that are equally important and are needed to help to keep your business running smoothly. This should include room for development as well as the ability to meet the monthly repayments and keep its cash flow under control.

Additional benefits

Every business is unique, so if your finance broker is part of a large group they will be able to call on someone else within the group who has expertise in a particular business or finance sector if they do not have the experience of that particular issue themselves.

In addition, you will benefit from the buying power of using a broker who belongs to a large group. If, as a whole, the group is placing many millions of pounds worth of business with finance providers each group member is likely to have significant bargaining power when it comes to negotiating repayment terms.

A finance broker is therefore likely to be able to achieve a more favourable deal on your behalf than you might on your own.

While a business could do all the research itself and deal direct with the finance providers, it may not have the knowledge or experience to ask the right questions to be sure that it is the right one for their needs.

Many finance providers are specialists in particular types of finance, such as only for vehicles, or they limit the types of business they will deal with, such as only with limited companies, or business with a defined minimum of turnover.  So it can take an individual business a significant amount of time just to identify the appropriate source of finance even before it gets into the details of negotiating terms and comparing quotes.

In summary, using a finance broker who understands your particular business circumstances is similar to the days when you had a long term relationship with the bank manager at your local branch. They would know you well enough, and had the autonomy, to be able to offer the right kind of finance for your business.  That is now the job of the independent finance broker.

Best of all, as they are paid by the finance company, they will not charge you for their services.

Why do lenders ask for directors’ guarantees?

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Finance companies sometimes ask for a Director’s Guarantee when a company is seeking business finance.

The Director’s Guarantee gives the finance company additional security in case the business stops paying off the loan.

Director’s guarantees are generally asked for where the credit is not strong enough to stand alone. It could be that company accounts are not strong or, in the case of asset finance, an asset being funded has little resale value (IT is a good example). Some funders request Director’s Guarantees on all lending regardless of covenant.

Often the additional security is asked for when the borrower is a start-up, which would therefore not have enough of a business track record for the lender to have confidence in its future or viability, or when the borrower is an SME, which may not have many physical assets that could provide security.

Other evidence to support the case for asset finance might include records of turnover, the company’s other liabilities, low profitability and few shareholders.

The more risky the finance company decides the loan may be then the more likely it will be to ask for the additional “insurance” of a Director’s Guarantee.

Directors should understand that a Director’s Guarantee makes the director, or directors, personally liable for repayment of the company’s borrowing. However, if they refuse, then they are very unlikely to be granted the finance they are seeking.

Nevertheless, it is always advisable to get independent legal advice before signing any agreement.  The wording of any agreement can vary from lender to lender and the small print needs to be checked to find out what exactly the director is signing up to. Usually, the Guarantee will be specific to the loan for a particular asset, but it is important to check that this is the case.

However, a director who is confident of the strength of their company and its future, as well as its ability to repay the debt, should not be put off from agreeing to sign a Director’s Guarantee.

Personal Contract Purchase

Personal Contract Purchase – what is it?

Personal Contract Purchase (PCP) is an increasingly popular form of vehicle finance. It is an agreement that runs for a specified period of time and has several alternative options at the end of that period.

Contracts usually run for two to four years and offer fixed monthly repayments with a portion of capital left to the end of the term.

Who should use PCP finance?

PCP is for individuals who want to run vehicles, avoid the risk of depreciation and disposal, but may want the option to purchase the vehicle at the end of the finance period.  There is a similar funding option for companies.

The guaranteed future value is calculated at the start of the PCP and among other things will depend on the amount of mileage you agree to do over the lifetime of the financial agreement as well as the likely depreciation to be expected.

What are the options at the end of a PCP?

You may:

i) Hand the vehicle back

ii) Pay the guaranteed future value to buy the vehicle

iii) Use any equity in the vehicle as a deposit on another one

The benefits and disadvantages of PCP

This is becoming a more popular way to buy a vehicle. Leaving a lump sum to the end of the agreement keeps the monthly payments lower which makes it a cost effective method of paying for a vehicle or enables you to run a better-quality car than you would normally be able to.

With this type of agreement you would have the opportunity of changing to a new car every few years and the risk associated with the residual value and depreciation is carried by the finance provider, not you.

On the other hand, you will be restricted to a defined level of mileage and have to make a decision about what to do at the end of the finance period.  There is also the risk that you will be asked to pay for any repairs if you decide to hand back the vehicle.

It is also important to note that following on from the EU Referendum and the decision that the UK will leave the EU, any imported vehicles are likely to cost more because of the reduction in the value of £Sterling, so PCP monthly payments are likely to increase.

How can refinancing help a business?

Would your business benefit from additional cash?

When a business owns assets outright either because they have paid for them at the time of purchase or completed a financing arrangement they can then use those assets to finance other plans.

It could be that the bank wants to rein in the business’ overdraft facility and is demanding immediate repayment. This could happen when an overdraft is secured against the company’s business premises and the bank has had the building revalued.  If the current value is lower than it was at the time the overdraft was arranged inevitably the bank will want to reduce the risk in its lending.

Perhaps the business wants to raise capital for a project, expansion or for research and development.

It may be that it wants to purchase an asset for which it is not possible to arrange a finance agreement.

This can apply to buying goods from overseas.   Often the overseas manufacturers will require the machinery to be paid for before shipping and finance companies will not take the risk.

It could also apply to an asset that is viewed as having little residual value. Finance is available, but often from only a very few companies and because they are seen as high risk the premiums they will charge will be very high.

Perhaps turnover is increasing as the business is growing so it needs a cash injection to improve its cash flow position. It can happen that orders coming in outpace the availability of funds for raw materials or supplies. Equally an increase in orders may mean a business needs to take on extra staff or vehicles to fulfil them.

It can be frustrating for a business that is working at full capacity and has the potential to grow if it cannot take advantage of an increase in orders through lack of finance.

In the past a business would have gone to its local bank, and would have had a long term relationship with the branch manager who knew the company well and would be able to take independent decisions based on their confidence in the business.

However, many of these decisions are now automated and based on a computerised assessment with the decisions not permitted to be made at local level and in the past ten years or so, since the 2008 Great Recession began, banks have become less willing to lend to small businesses.

For businesses that are “asset rich but cash poor” it makes sense for them to release some of the value in the assets to raise the cash required.

Finance can be raised on most tangible assets such as vehicles, plant and machinery or equipment which has a quantifiable value and it can be a useful way of helping a company to develop and grow.

Interest Rates : Fixed or Variable

There is a perception among small businesses that banks are reluctant to lend to them, despite such Government schemes as Funding for Lending that were meant to mitigate the risks to banks.

It remains to be seen when and whether the stimulus measures announced earlier in August by the Bank of England, which included a cut in the base rate to 0.25% and a new “Term Funding Scheme”, will make a difference.

The banks’ reluctance to lend has been attributed variously to their being averse to risks and their not being able to make what they consider to be an acceptable profit on the sorts of small loans most SMEs would want. 

The interest rates on bank loans to SMEs can therefore be quite high and for some time, SMEs have been turning to other forms of finance, among them crowd funding and asset finance, to support their growth plans.

But while finance firms may be much more willing to lend for asset and business purchases, they, too are businesses and therefore need to make a profit by charging interest on loans.

Understanding finance company interest charges

Costs of funds can change week to week or month to month from finance providers depending on what is happening to market rates.

The question is whether it is worth the borrower waiting to see what happens before making a purchase and how much difference it will make. While activity is slow, as it has been in the aftermath of Brexit, it is possible borrowers might get a better deal on the items they are considering finance for than if they wait. Suppliers may have quotas to meet so could be open to offering discounts.

Another question is whether to go for a variable or a fixed rate deal.

A fixed rate can appear more expensive but it gives certainty to a business when factoring the payments into monthly overheads and cash flow.  This is one reason why such agreements are more popular. At the moment indications are that with interest rates so low, depending on your individual circumstances, this would be the preferable option.

With a variable rate deal it is important to remember that interest rates can go up or down, making it harder for a business to budget and keep on top of payments. With these loans, repayment is either by the customer making monthly capital repayments and being billed quarterly for interest, or, more commonly, where the customer makes monthly capital plus interest payments. In this case the lender keeps track in the background of whether the agreement is ahead of or behind schedule in relation to the duration of the loan.

Ultimately, the choice between fixed and variable rests on what works best for each business, but one thing is for sure, business is a dynamic process and putting growth plans on hold indefinitely is not a wise option.

Post EU Referendum business on hold?

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While it is true that businesses abhor uncertainty and tend to become more cautious about investment in growth when they cannot see the economic way ahead, it is also true that for most businesses doing nothing is not an option for survival.

So, given that it is expected to be at least two years before there is clarity about the UK’s proposals and any agreements in the aftermath of the EU Referendum vote to leave, what should businesses be doing?

Despite the monthly economic indicators, such as the Markit/PMI suggesting plummeting confidence and a contraction in manufacturing, the situation is not all doom and gloom.

As in any upheaval there will be both winners and losers, but those that opt for at least some moderate continuation of their plans for growth could arguably do better than those who suspend all investment activity.

While the referendum decision has increased costs for those buying in $US or Euros at the same time it has left exporters in a more competitive position due to the drop in the value of £Sterling.

But is finance still available for those who may have been planning to upgrade equipment or expand in other ways?

The short answer is yes.

There are lending facilities in place from asset finance suppliers and the Challenger banks have also signalled that they will continue to lend.

For those businesses that were planning to invest in growth, it might be better to go ahead than to wait, on the grounds that interest rates have not yet moved upwards so a fixed rate package may be more affordable now than later.

Finally, a good move for UK exporters of goods and services would be to communicate with their customers in Europe and elsewhere to reassure them that they are still valued as customers and there will be no change to providing whatever is required.  In some cases it may even be possible to offer more favourable prices to overseas customers.

What is asset finance?

Asset finance is a way for businesses to buy or lease new and used equipment.

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In asset finance an asset is generally considered as something that is tangible, identifiable and removable.  Examples include cars, commercial vehicles, plant and machinery, agricultural and industrial machines or office equipment.

If the finance arrangement is for a purchase, it is essentially a loan for which the security is the item purchased, which the lender can then take back if loan payments are not kept up. In some cases further security may be required, such as a guarantee.

Similarly, with a leasing arrangement the item being leased can be re-possessed if payments are not kept up.

When would a business consider asset finance?

A business may be at the point where it is ready to expand and needs more equipment or it may need to replace old or out-dated equipment which is becoming too costly to maintain or no longer meets current production needs.

Having access to the latest equipment can be important to a business’ ability to provide goods or services to clients and customers as cost effectively, quickly and to the highest possible standard.

In cases where the equipment, such as a van, is on show the condition of that equipment may also be important to reinforce a company’s image and reputation.

In either case, a business may not have enough free capital available to be able to purchase equipment outright without risking overstretching its resources.

What are the advantages of using asset finance?

It allows a business access to the latest equipment while spreading payments manageably over a defined period of time.

Many finance agreements come with fixed interest rates over the payment period.

The agreement cannot be cancelled as long as payments are kept up to date.

It frees up the overdraft with the company’s bank.

Depending on the type of asset finance agreement, a business may be able to claim the monthly repayments as a business expense and thereby reduce its tax bill.  However, we would always advise a business to check with its accountants as to whether this would apply.