Chris Morris is a Director at NGI Finance and explains some of the funding options available as an alternative to approaching your bank.
The low risk appetite for lending among banks that was a consequence of the recession of 2008/09 has brought to light many alternative forms of finance for your business. The financial crisis forced these institutions to reign in their lending so that they could repair their balance sheets. Unfortunately numerous safe and secure companies went to their banks during this period seeking finance only to find their applications rejected at a time when they most needed an injection of credit.
Every cloud however, has a silver lining because this forced business owners to explore other options and at the same time led to the rise of new internet based sources of financing such as Crowdfunding. With this in mind, here are 4 viable alternatives to bank finance if your business is in need of some vital capital.
1. Unsecured business loans
An unsecured loan is one which is issued and only supported by the borrower’s credit worthiness. There is no need for any formal security where the lending is done against an asset or form of collateral owned by the business. However, a personal guarantee may be required. Unsecured loans can be taken out for shorter-term projects and expenditure. These can be used to fund the purchase of many things - including equipment - and it can also help to alleviate cash flow problems, plan an extension, support working capital, or to reduce an overdraft.
2. Asset finance
Asset finance is a form of finance used for acquiring specific assets such as vehicles, IT equipment and plant and machinery. Often it is applied so that you can acquire the necessary assets needed to expand or continue trading, and make regular small payments based on cash flow abilities. It is popular among many types of business - from office-based companies to manufacturing and agricultural services.
Asset finance is a good alternative to a bank loan because borrowers can receive increased tax benefits and can budget payments based on their own circumstances. Furthermore it can reduce a large initial outlay on an expensive item or investment.
3. Invoice financing
Invoice financing is a product that unlocks cash tied up inunpaid invoices to give you immediate access to funds. Also referred to as factoring, it allows companies to collect a cash advance of a percentage of the value of their outstanding invoices. This allows your business faster access to your money, instead of waiting for the invoices to be paid. In return the factoring company will take control of the sales ledger along with responsibility for chasing up your unpaid debts.
Another option available to companies is invoice discounting, whereby you can draw money against your sales invoices before your clients/customers have actually paid you. Compared with factoring, this means that clients will not know that you are not collecting the debts and will reduce the potential stigma often connected to invoice financing.
4. Commercial and investment mortgages
These are generally taken out on the purchase of commercial premises; most commonly offices, shops and buy-to-let property. Unlike standard mortgages, the lender will take account of the potential earning power of the land and property in question rather than the earnings of the individual taking out the mortgage.
Lenders will take special interest in the type and location of property, lease terms, quality of tenant and rental rates to prove that the income from purchasing the property will eventually be paid off.
Case study: A film production company
A specialist film production firm were referred to NGI Finance by their corporate lawyer. They wanted to purchase new IT and digital scanning equipment in order to secure a contract awarded by producers of a major new motion picture. Their bank refused to lend them the money.
NGI Finance was able to introduce sources of finance that the company was not previously aware of. Working with NGI Finance, they secured successfully £1million worth of asset and loan finance. This was a syndicated deal whereby 5 lenders were pulled together to spread the risk for the client to find finance for a combination of hard and soft assets i.e. the new computers, scanning equipment kit and working capital.
“It was very satisfying to have been able to put together a syndicated finance deal for this client when they were turned down by the bank. This is a great example of referral business, with their lawyer recommending us as someone who he knew could provide expert advice and find an alternative funding solution.”
Based near Oxford, NGI Finance has helped businesses across the UK secure over £100m worth of funding since its inception. If you would like to explore the options and find out more about raising money for your organisation then please contactChris Morris.
The content of this post is up to date and relevant as at 19/11/2014.
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