Q. My company imports garden furniture from China and India and I distribute to the UK retail and wholesale markets. I ship goods to order, have a highly seasonal

business and am now approaching my busy period. I fund my business with an Invoice Discounting facility with an independent finance company and I am happy with the charges but they have told me that my advance rate of 90% is as high as they will go?

A. The nature of your industry and, specifically the purchase transaction, is such that you could link a trade finance solution into your Invoice Discounting facility. The trade finance company and the Factoring Company can even be the same funder.

This means the funder will open the letter of credit for you and purchase the goods from your overseas supplier.

The traditional credit term of 90 or 120 days will allow the goods to be shipped and delivered as you raise the sales invoice and put this through the Invoice Discounter. The money they generate will be used to clear the letter of credit.

Q. I run a recruitment consultancy and I have short term contracts overseas. My business is very much project driven and the turnover profile is feast or famine. My bank converted me to Factoring and they chase my debts quite hard which is upsetting my clients and, in addition, when the sales are low I have no cash.

A. There are essentially two problems to resolve here. Before we look at these problems, it is important to say that sales financing is the most appropriate method of funding for your business.

The first problem is the nature of the sales funding product, you clearly have a full service factoring product and, whilst many companies find the outsourcing of the credit control a major benefit, it is not working for you. Approach your finance partner and look at Invoice Discounting as a solution. This will provide you with the working capital benefit you currently enjoy but the collections are left with you and it is a confidential method of finance so your customers will not know you are funding your debts in this manner.

The second issue is the erratic nature of your turnover; there are two solutions to this: a fixed overdraft that would accommodate the cash pressure during the low sales periods and provide a ‘buffer’ facility. Alternatively, If your bank is not willing to provide such a facility directly then ask about the small firms loan guarantee scheme. This is a loan, where the bank provides the credit but the government / DTI takes the vast majority of the risk. There are rules of qualification, however your bank should be able to guide you. Alternatively there are finance providers in the Factoring and Discounting market that can provide a small firms loan to support the current working capital facility.

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So how does one decipher the integrity and value in the services offered by a broker when they do not know them from a bar of soap? Many will tell you it has got to do with the best interest rate, yet rate alone may not be the difference in what loan product is best. The true reflections are in the repayment amount, and let’s face it, that is most important to the consumer and the affordability.

The consumer or business owner quite simply is faced with the challenge of needing or has the desire for something beyond what is in their means, do not confuse if for being anything much else. Be it they want a new car or home or need money to expand their business, regardless of the scenario they have their sights set on the feeling of owning that new asset or experience, you simply are the conduit to bring that dream to life.

How many consumers today are emotionally attached to what a finance companies says about how good they are and the services they offer? The proof is literally in the pudding when it comes to a broker, it is determined by the whole package he or she is providing. Some finance brokers will go for the quick kill that is sign you up and extract the highest amount of commission possible before you have had time to process the whole experience.

The reality is, that it needs to be a packaged service. To draw a comparison it is like getting on a bus to travel to your destination where along the way you encounter road works and a detour though you remain confident that the driver will get you safely to your location. The same can be said for the process of seeking finance. You are looking for the peace of mind in knowing that what ever obstacles your finance broker faces you can rest easy knowing they will look after you.

So what does it take to find a great broker, referral for one, if you know somebody that has had a pleasant experience then approach them or even ask the question how will you help me. Naturally everybody’s situation will have variables though size them up. Make sure you are not confused by all the industry acronyms, just to give it to me in layman’s terms. Have them deliver you three different scenarios as a minimum so you can make an informed decision. A lot will be pushing a specific financier onto you purely because it benefits them to extract a higher commission.

When it comes to the crunch do your homework and be careful not to get caught in the vacuum of thinking this is the only person who can help me source finance. No doubt there is enough emotions swelling up inside you at the prospect of acquiring this new asset, try and think with your head and not you heart in this instance. Best of luck and may all your dreams come true.

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Remember to explore all of your options before you come to a decision. There are some basic sources: personal financingâ??the number one source of capital for most of new business owners comes from personal savings. While credit cards care often used to finance business expenditures, you can usually find a better option, even a very small loan. Family and friendsâ??even though it may be awkward to borrow from a relative or a friend, this may be one of your easily accessible options. Often, money is loaned interest-free or at a low interest rates; very beneficial when starting out. Last but not least, Commercial institutions and high street lenders.

Before you approach a lender for fast business loans, you need a clear picture of what loan will be used for, and you will need to know how to present this information. It is also important to have a realistic plan for Fast Business Loans UK repayment. When preparing for fast business loans UK, consider the following:

â?¢ Know the purpose of your fast business loans.

â?¢ Know the specific amount of the fast business loans.

â?¢ Create a business management profile.

â?¢ Present an overview of your target market. Present your project customer base and competition.

Having an organised and detailed business plan to present to the lending firm is a wise move. Lending institutions want to see what the business will be, how the money will be spent, and when fast business loans UK will be repaid.

Consequently, as you want to avail fast business loans UK, overlook the ads on websites or in newspapers. Indeed, there are no short-cut for starting successful fast business loans UK. The business plan steps given above end up with an idea that actually has the prospective to succeed along with the money and fast business loans UK online the satisfaction you have been dreaming.

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Regular Financing Options

When it comes to business finance, there are many flexible options available such as leasing, factoring, regular loans, etc. However, all these options lack the attribute that we are discussing in the present article. Though sometimes all the above are the cheapest options for financing equipment purchases, manufacturing and internal or foreign sales, the truth is that they fail to provide a solution when time is an issue.

If you are about to complete a good deal and a machine broke up and you lack the funds for repairing, you can not wait for a leasing contract to be signed in order to replace the equipment and if the delivery is close enough, you probably will not have enough time to request a regular business loan either.

Fast Options For Business Finance

There are mainly two finance alternatives when time is an issue: Fast Business Loans and a Business Line of Credit. Which one is the best choice depends on many factors such as: time available, amount needed, recurring, credit situation, income expectation, etc.

Fast Business Loans require no long credit verifications. The money you need can be obtained quickly with little paperwork. However, further paperwork and credit checks may be needed after the money is delivered in order to close the deal on better terms. Business Lines of Credit on the other hand, take more time to be approved. But once you have a line of credit agreed, you will be able to borrow the money you need at any time, return it the way you want (with certain limits) and borrow more money as many times as you need it up to the credit maximum.

As regards to the amount, business lines of credit will provide you a smaller amount than regular business loans but higher amounts than fast business loans. Moreover, business lines of credit provide a recurring source of money which eliminates the need of applying again whenever you need more cash.

Approval for both types of loans is determined by the business’s credit situation. However, fast business loans have fewer requirements than business lines of credit. Nevertheless, approval ratio is high enough for both kind of loans and unless your business has had mayor financial delinquencies in the past approval is almost a certainty in both cases.

The Interest Rate charged for fast business loans is higher due to the fact that there are not so many requirements and fewer credit checks. This implies a greater risk for the lender that is compensated by higher rates and higher costs. However, the difference will not be more than 3 or 4 percentage points.

Finally your income expectations will also determine which loan option is best for you. Given that fast business loans carry higher interest rates and fixed monthly installments, unless your current and future income guarantee that you will be able to repay the loan, you will probably do better with a business line of credit that offers more flexibility when it comes to the repayment plan.

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 If Bank A has a general loan size limit of $3.5 Million and you need a loan for $3 Million and have plans to increase your loan amount over the next 18 months to $5 Million to pay for your business’ expansion, you should not approach Bank A for a loan. Assuming you qualify, Bank A will likely approve the $3 Million loan but not the increase meaning you will need to shop for another bank in six to nine months. Save yourself the hassle and approach the banks with general loan size limits of $6 Million and higher. Unfortunately, only a few banks explicitly state the profile of their target client or loan size. The rest is knowledge garnered only through research and relationship building -or by simply asking the appropriate bank personnel (i.e., a business banker).

Banks maintain loan portfolios. If a few of a bank’s clients in a particular industry recently defaulted on their loans, that bank will restrict its lending to other companies in that industry and sometimes, sister industries. In addition, if a bank reaches a heavy weighting in a specific business category such as residential construction and home building companies, to adjust its portfolio lending the bank will often restrict or deny all loans in that category for the remainder of the fiscal year. Thus, with a number of Georgia banks having been hard hit by the demise or financial distress of home builders due to the drastic reduction in new home sales, as a commercial construction or related company, it is worthwhile to inquire about the bank’s residential builder exposure. Many of these banks are not in a position to lend sizable amounts of money and do not publish this information but generally will acknowledge their exposure when questioned.

If you are a small business with under $10 Million in revenue, a good place to start for research is the state ranking of small business loan providers compiled by the Small Business Administration (SBA). The SBA ranks the top ten providers of SBA-guaranteed loans in each state in two categories: total volume of loans and total dollar volume. If you seek small dollar value loans (i.e., under $250,000), pursue the high loan volume group. If you seek a higher dollar value loan (i.e., $1 Million and above), pursue the high dollar volume group.

If you are pursuing a bank loan and have been turned down, ask yourself some questions.

·         “Did we approach someone with signature authority or did we meet with a low level employee who has to fight for every dollar above $25,000 or $50,000 that he or she requests?

·         “Did we dress professionally and project confidence or did we show up in shorts and appear surprised by all the questions asked of us?

·         “Did we discuss our intention to build a long-term relationship with a bank we can grow with or did we say we were shopping around for the best rates?

·         “Did we provide a loan package – an executive summary and our financial statements - or did we jot some information on a post-it note?”

If your response was the first option for each question, then conduct research on what types of banks may get you to yes and what alternative capital sources may exist. If you responded yes to the second option for each question, you must work on your packaging and preparation before you approach another bank or any other financing source. If you are not prepared, you cannot provide a modicum of a financial statement or other finance-related information, and you cannot adequately describe your business and market in words, then you will likely continually be turned down by banks and by many of the alternative financing sources.

A bank does not want to see a business plan. Instead, they want to see a very condensed, highly relevant synopsis of the business plan called the Executive Summary. This is typically three to five pages long and includes the following:

1)      General overview of the business;

2)      Industry overview;

3)      Market overview including competitive advantage;

4)      Management team including board of advisors;

5)      Growth plan for the business;

6)      Financing need and why;

7)      A chart of sources and uses of funds.

Each section should be about one to two paragraphs each. Attached to the Executive Summary should be historical financials for the past three years, audited or reviewed. If the financials have not been audited or reviewed by a CPA – and the overwhelming majority of small business financials have not – then copies of the business tax returns for the prior three years are needed.

One last point: Build and nurture a relationship with your banker. A true banker is someone who has decision-making authority…typically someone who has signature authority for $500,000 or above. Cultivating a relationship with a good banker is well worth the effort. That banker will support you when your margins drop (if kept informed), point you to other financing sources if he or she cannot directly assist, and seek creative solutions if your loan needs exceed the limits for the bank. 

All rights reserved.© Excerpted from Solving the Financial Equation: Financing Solutions for Small Businesses

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