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.