Corporate Finance Associates Blog

The funding opportunities open to Business to Consumer (B-C) businesses have always been extremely limited and the choice has often been the bank or nothing, utilising an overdraft facility.  Not anymore.

As so many businesses have found to their cost the whole concept of an overdraft is that it is an ‘at call’ facility, in other words if the bank wants it reduced or repaid, that is tough, that is what you will have to do, and as banks traditionally tend to look at where your business has been, as opposed to where it is going this can be somewhat limiting.

Businesses that issue trade invoices and expect to be paid on those invoices within, 30, 60, 90 or 120 days do have a solution namely factoring and invoice discounting and we are often asked for our support here and this is a relatively flexible alternative to your bank, because as the business grows, and a lot are, the facility can grow with you.  B-C businesses haven’t up to now had that luxury.

The solution, well for those B-C businesses that utilise  a card processing machine to handle the debit and credit card sales they are making, they can now raise funds against future sales, based broadly on an average of their card sales for the previous 12 -18 months, so not a facility for a start up business but a fantastic solution to those that have been established for a while.

The beauty lies in the ability to repay the facility from future card sales at a rate that relates to the amount that is being processed, so if your business has seasonal highs and lows, the repayments which are a percentage of the total takings mirror these peaks and troughs.

What’s more the business can use the proceeds for anything they want but normally this is currently being used to enhance the business, buy more stock, refurbish premises, run an ad campaign and so on.

So if you know or indeed run a business dealing with the general public where credit and debit card sales are a reasonable portion of your turnover, why not check out this alternative.  There are no lengthy assessments, financials or forecasts required, and the money could be in your bank account within 2 weeks.

Give us a call if you would benefit from further details or an assessment as to whether your business meets the criteria, on 01584 781601 or visit our contact page click the ‘Card Sales Funding’ category and add any extra information the note box on the form and we will get back to you.

Asset rich and cash poor, how many times have we heard that phraseology?  But what about ‘We can afford to pay it (the interest) and repay it on time but don’t have any money to put in’?  The concept of self certification mortgages has finally been put to rest and are no more, but we are still being asked to help businesses that espouse the latter scenario in that they will make good money from what they are doing, so repayments are easily covered, and will make a significant profit a short way down the line, but the lenders don’t like this approach.

The old saying about a banker is that he is someone who lends you an umbrella when the sun is shining but wants it back when the rain starts falling, very apt, but it should be remembered that is what they are, bankers, not property investors, not widget makers, not housing developers, so to expect them to take an entrepreneurs view rather than a risk takers view is wishful thinking.

Bankers want to see their borrowers share some of the risk, which is why even if a property can be bought cheaply, under what is deemed to be its market value, it is unrealistic to think that ALL of the money can be borrowed so some lenders have reverted to their ideal which is to lend a percentage of the market value or the purchase price whichever is the lower so that in every case the borrower is risking something, even if it is not cash but a charge on some other assets they own.

A good development deal is another case in point, the end profits may be good, but if the developer is taking no risk at all at any stage, even if they actually recoup it later, lenders won’t either.

Borrowing is a partnership, so put something of value on the line and you will get the support, try to do it without and the project will never happen.

The market has changed but realistic borrowers will still get the support their project deserves, they may just have to put the banker’s hat on for once.

If you have a proposition that merits investigation, do visit our contact page and get in touch, we will be honest enough to let you know what can be achieved.

The Conservative Liberal coalition’s emergency Budget was described as “courageous” and “decisive” by international think tank, the OECD.

The Budget had promised to be tough, delivering cuts in public spending and tax rises intended to start what was expected to be a long journey to pull Britain out of an economically challenging position. George Osborne said in the speech that this was a Budget that would “pay for the past and plan for the future”.

The measures George Osborne delivered, focused primarily on cuts in the public sector, including a review of public sector pensions to be lead by John Hutton, together with tax rises which will hit every tax-payer in the country and the massive overhaul of welfare benefits.

Rather than make this an exceptionally long post the following is a summary of the key points from one of the partners we associate with.

Budget Summary

Thanks to Hayward Wright Ltd for their permission to reproduce it.

We always welcome your feedback and comments.

When creating articles for this blog, I do tend to reflect on what is fairly high on our radar at any particular point in time and over the past months we have had our fair share of enquiries from businesses that choose not to declare all of their trading incomes, and it is rare that we will ever be able to help them.

In the belief that under declaring actual incomes, especially with cash based retail businesses will mean that the business owner will pay less tax, they fail to understand that when they want to borrow money, this failure will mean that they will not get the support that they desire.

Prior to what we now call the ‘Credit Crunch’ there were a significant number of lenders who would allow a business owner to ‘self certify’ his income and that they had the capability of repaying any borrowing they took out.  The result were a lot of businesses that did achieve that, but emerging from the woodwork over the last 2 years have been those that were never earning what they were declaring and got into difficulties.  Is it no wonder therefore that lenders are now asking more questions?

It only takes an analysis of an individual’s income and expenditure to see that these figures do not tally, as the level of expenditure cannot be justified or supported by the income that is actually being declared, and to expect that lenders will not cross reference these figures with the accounts that are submitted would be naïve in the least.

We are constantly advising potential applicants who seem to have no qualms about this is that we will not be able to deal with them unless they are honest in their dealings and employ the services of a good accountant to work with them, as the better ones are very skilled at mitigating any tax liability anyway.

As a reputable organisation we are obliged to have a robust policy on money laundering and have the means of reporting our suspicions.  What businesses need to understand is that money laundering is not all about ‘white powder’ and other ‘iffy’ substances and their trade, but any undeclared or black economy dealings that are operating from the point of view of evasion.  Property is a classic scenario where some of these things take place, so expect to be scrutinised.

Just remember avoidance (using a good accountant) is legal, evasion is illegal, and unless applicants come clean they will need to arrange their funding elsewhere or take their chances with the private lenders who may not have our, and most reputable brokers, scruples.

Following my earlier blog item relating to the fact that from the IoD’s figures nearly 60% of businesses have failed in their applications for funding , a new phenomenon is emerging, being that of organisations that promise the earth and rarely deliver, only after having parted the client with a significant amount of their cash!

Commonly known as Advance Fee Fraud this is where an unscrupulous broker (or claim to be a broker) promises access to an eye watering array of financial deals that really get the juices going, what with “advances up to 85% LTV” “rates from 1% above bank rate” “no credit checks” and so on, all of which are patently unrealistic in the current credit climate, but the downside is a significant upfront fee for the “broker” to go to work for you.  However a few weeks or months down the line they fail miserably, but the fees were “non- refundable”.

The National Association of Commercial Finance Brokers (NACFB) of which we are Full Members have been actively campaigning to stamp this out and welcome all reports of this sort of activity whether from their own members or those not affiliated with them, as the aim is to maintain the reputation of the brokers that don’t promise pie in the sky but will work diligently to get their clients the best deal available.

Commercial brokers are, for the time being anyway, able to operate in an area that is not covered by strict FSA regulation, the downside is that anyone could set up shop tomorrow and start trading with few skills or knowledge to bring to the table, apart from a tremendous ability to convince would be borrowers to part with large upfront fees.

Do we charge fees, most definitely, as it allows us access to lenders who would not normally pay us any introductory fee?  What we do achieve due to our “bulk” application approach, where we can introduce a much larger amount of business to a lender over time are slightly better terms than if he were to go to his bank direct, often covering our fees within the first year.  We also charge a proportion of that fee at the outset but that is a nominal amount just to cover our costs and not the £5,000, £10,000 and even £20,000 up front fees we have come across recently. 

We rely on our reputation and having been around for the last 20 years we still want to be here in 20 years time so our fee structure is geared to successfully delivering an offer on the basis we have already outlined with our clients.

Just remember, when it comes to wonderful deals, if it seems too good to be true, it probably is.

The following information was provided by one of our partners as their interpretation of the main points of the March 2010 Pre-Election budget.

The Chancellor has now set out his fiscal stall prior to the expected general election in May. As forecast there is a modicum of electioneering in the speech!

This report focuses on some of the tax changes we can now expect. We will also have further changes to deal with after the election.

PERSONAL TAX ANNOUNCEMENTS

Changes to Stamp Duty Land Tax (SDLT)

First time buyer’s concession

One of the more politically charged announcements today was the introduction of a new relief for first time home buyers which will exempt them from Stamp Duty on a property purchase up to £250,000 – this is effective for transactions taking place on or after 25 March 2010 and before 25 March 2012. This additional relief is partly funded next year by the increase in SDLT on more expensive property sales.

To qualify all of the following conditions will need to be met:

1. The individual or individuals jointly purchase a major interest in land which is wholly residential, and

2. The consideration is more than £125,000 but not more than £250,000, and

3. The individual(s) intends to occupy the property as his/her or their only or main residence and has or have not previously purchased such an interest or its equivalent anywhere in the world.

New rate of Stamp Duty for expensive properties

From 6 April 2011 a new 5% SDLT rate will be applied to residential property sales where consideration exceeds £1m.

Income tax rates and thresholds

The changes to tax rates and thresholds announced in the pre-budget report last year have been confirmed, including the advent of the 50% income tax rate for tax payers with taxable earnings in excess of £150,000 per annum.

A reminder of 2010-11 position is set out below:

• the basic rate will remain at 20%;
• and higher rate will remain at 40%;
• the additional rate will be set at 50%;
• the basic rate limit will remain at £37,400;
• the starting rate limit for savings will remain at £2,440;
• the personal allowances will remain at their 2009-10 amounts.

From 2010-11 the additional 50% rate will apply to taxable income above £150,000.

From 2010-11 the amount of the personal allowance will be gradually withdrawn for all individuals (regardless of age) with “adjusted net incomes” above £100,000. The rate of reduction is £1 for every £2 above the income limit.

NIC rates and thresholds

Apart from minor adjustments to the Lower Earnings Limit for 2010-11, NIC rates and thresholds remain as in 2009-10.

The previously announced combined increase of 1% in the main rates of NIC will be effective for 2011-12.

Pensions

The restriction of tax relief for tax payers earning in excess of £150,000 per annum is confirmed. This will take effect from 6 April 2011.

The Registered Pensions Scheme 2010-11 Lifetime Allowance of £1.8 million and Annual Allowance of £255,000 will continue to apply at these levels for a further five tax years, i.e. up to and including the tax year 2015-16.

Furnished Holiday Let Property

As previously announced the special tax concessions offered to owners of qualifying Holiday Let Property will cease from 6 April 2010. From this date, income from such property will be taxed in the same way as income from other property rental businesses.

Inheritance Tax

The current Nil Rate Band of £325,000 will be frozen at this level for all tax years up to 2014-15.

Company Car Tax changes

A new 10% car benefit rate will be introduced on 6 April 2012 for all company cars with emissions up to 99g/km.

Additionally, from 6 April 2010 to 5 April 2015 there are two further changes to the chargeable benefit in kind for company cars and vans with zero emissions or emissions up to 75g/km. These are:

• the first change is full relief from the chargeable benefit in kind on company cars and vans which cannot produce more than 0g/km CO2 engine emissions under any circumstances when driven.
• the second change reduces the chargeable benefit in kind on company cars which have an approved CO2 emissions figure of exactly 75g/km or less, to 5% of list price.

Tax Credits

A number of changes to tax credits were announced including:

1. From April 2012 an increase in the child element of £4 per week for 1 and 2 year olds.

2. From April 2010 awards for fixed period childcare costs (such as claims of a few weeks during the school holidays) will be averaged and paid over that fixed period rather than averaged over a year. This will enable families to receive all the financial support towards their childcare costs they are entitled to receive for these periods when they need it.

3. From 6 April 2011, people aged 60 and over will qualify for Working Tax Credits if they work at least 16 hours a week.

4. As announced at the 2009 Pre-Budget Report and confirmed at Budget on 24 March 2010, from 6 April 2010:

• the Child element in Child Tax Credit will increase by £20 above earnings indexation to £2300 per year. An increase of £65 per year overall;
• the disabled elements of Child Tax Credit will increase by 1.5%;
• the elements of the Working Tax Credit (except the childcare element) will increase by 1.5%;
• maximum amounts for child care, family and baby element for Child Tax Credit, the income disregard, the first and second tax credit threshold and the withdrawal rates remain unchanged; and
• the income threshold for those on child tax credit only rises to £16,190.

From 12 April 2010:

• Child Benefit rates and Guardians Allowance will increase by 1.5%.

BUSINESS TAX ANNOUNCEMENTS

Annual Investment Allowance

At present it is possible to write off the full cost of up to £50,000 of capital expenditure on qualifying assets. This limit is doubled from 1 April 2010 (for corporation tax) and 6 April 2010 (for income tax) to £100,000.

First Year Allowance

The temporary first year allowance of 40% ceases to apply on 1 April 2010 (corporation tax) and 5 April 2010 (income tax).

Tax incentive for British Video Games industry

The Government is to seek State Aid Approval to introduce a new tax relief for the UK video games industry. Consultations on the shape of the new relief will begin later this year.

Losses – carry back

Corporation tax

The temporary extension of trading loss carry-back from one to three years for losses up to £50,000 continues for company losses arising in accounting periods ending between 24/11/08 and 23/11/10.

Income Tax

The temporary extension of trading loss carry-back from one to three years for losses up to £50,000 continues for the 2008-09 and 2009-10 tax years for unincorporated businesses; consequently this relief for income tax purposes will cease 5th April 2010.

Corporation Tax Rates

For the Financial Year commencing 1 April 2011, the small profits rate of corporation tax remains at 21%.

For the Financial Year commencing 1 April 2011 the main rates of corporation tax are set at 28%.

VAT increased registration and deregistration limits

The taxable turnover threshold, that determines whether you should be registered for VAT, will increase from £68,000 to £70,000 from 1 April 2010. The taxable turnover threshold that determines whether you could apply for deregistration will be increased from £66,000 to £68,000 on the same date.

Business Payment Support Service

This service which allows you to negotiate extended payment of your tax dues, including VAT, Corporation Tax, Income Tax and NICs and PAYE, is to continue.

HMRC will require businesses seeking Time To Pay (TTP) arrangements for arrears of £1m or more, to provide an Independent Business Review (IBR) in support of their request. It is expected that the new requirement will be implemented from April 2010 and HMRC will informally consult on how this will work.

There will be no change for other businesses.

Capital Gains Tax

There was speculation prior to the Budget that the CGT rate would be increased to close the gap between the present 18% capital gains tax rate and the more punitive income tax rates which peak, from 6 April 2010, at 50%.

Surprisingly there is to be no increase and as an unexpected bonus the lifetime limit of gains that can be covered by Entrepreneurs’ Relief is to be doubled, from £1m to £2m.

The present annual exempt amount for individuals of £10,100 is unchanged for 2010-11.

Anti-avoidance legislation

There are the usual spate of complex issues which are coming under HMRC scrutiny – this includes closer exchange of information with certain off-shore tax havens that have benefited a particular high profile individual recently!

One of the more relevant areas of proposed legislation is with regard to Employee Benefit Trusts and similar arrangements. HMRC consider these as being used to disguise payments of remuneration with a consequent loss of tax and National Insurance. They have declared their intention to introduce anti-avoidance legislation to take effect from 6 April 2011.

Fuel Duty

The expected increase of 2.76p per litre in fuel duty that was due to be implemented on 1 April 2010 is now to be phased in as follows:

• 1 April 2010 increase of 1p per litre

• 1 October 2010 increase of 1p per litre

• 1 January 2011 increase of 0.76p per litre

This Budget sets out the action the Government is taking to promote long-term sustainable growth.

These changes will may well affect you and your business, if they do don’t hesitate to contact us for further clarification how this could affect you.

Prospective clients often find their way to us as they have approached their own bankers to support their borrowing requirements and are astounded after years of loyalty to the bank concerned, their applications are being rejected.  Indeed according to the Institute of Directors “… nearly 60% of businesses seeking bank finance in 2009/10 were rejected by their bank”.

According to research from a credit reference agency often used by the banks and the Forum of Private Business (FPB), a fifth of all small business owners who have been refused a loan are completely in the dark about why they were rejected.

The most common reason given to businesses that are told why their loan was denied is inadequate security. More than 40% were given this reason but the lenders are not pursuing the government backed opportunities to get around issue.

Computer Says NO!

A further 30% were dismissed because the sector they operate in is deemed “high risk”, while 27% are let down by their credit score. 

The former is difficult to challenge because it is subjective and we have no access to the lenders own level of experience in the relevant sector, we can only rely on general business sentiment and I think in certain circumstances that is all the lender’s underwriter is doing. 

The latter is again difficult to challenge as despite what an individual business’s (or the owner’s/director’s) credit score is, the lender sets the threshold level to suit their purposes.

Martin Williams, managing director of credit reference agency Graydon UK, said: “It is vital that business owners and managers enter into a conversation with their bank in order to find out where their perceived business challenges lie. This will allow them to address these issues in future applications, considerably improving their chances of securing funding”. 

We would add here that this is an admirable approach but one often where one comes against a brick wall as your own bank contacts (the ones you got on well with before) are now so divorced from the underwriting process they are often in the dark themselves as to the thinking behind the decision as to be in a difficult position to advise.

We always suggest that some form of feedback is obtained why the refusal of support was given, and indeed we ask for it if it is not volunteered, but unless we were the originators of the application, the lenders will not tell us and it is up to the business owner themselves to get the right answers, and if they feel they are out of their depth here, we can help.

Phil Orford, chief executive of the FPB, said business owners needed to make sure they were presenting proper financial information, but also called on the banks to provide detailed reasons when loan applications are turned down.

“We have entered a new business landscape where a more collaborative approach between businesses and banks is required if the future of enterprise and the economy is to be a healthy one,” he said.

“Securing finance is the main priority of the vast majority of small businesses. Economic conditions remain extremely tough and, even when the economy does recover substantially, growth finance will be important to allow them to keep up with demand.”

Our aim at CFA is to ensure that all viable applications are presented in a format that the lender will understand, with all the background information we know will be sought and explore the options open to the applicant moving forward.  We are generally successful in obtaining a workable lending solution, but only because we have done our homework and preparation first to ensure we are painting the right picture, and of course do not waste everyone’s time submitting applications to lenders who patently have no appetite for our applicant’s business.

We can help at the early stage in preparing a robust business plan that not only looks at the strengths and weaknesses of the proposal, but goes deeper into the micro and macro opportunities and threats that need to be addressed.

If you have had a challenge, working with your existing bank, give us a call and let us see if we can help.

Many times the pervading view is that bargains can be had when buying at auction however, property auctions are not for the faint hearted and the risk can be that you go overboard in the heat of the moment.

Some bargains can be had at auction but usually only for those with the skills to capitalise, namely builders and developers who can add value to the stock and overcome the challenges that are often the reason why the property went into the auction in the first place.

I have seen 1st time buyers looking for a property that they can “do up” to live in but the fundamental point is that a lot are not mortgageable by standard means and often involve bridging for a short time until they are. A point to be aware of here is that some lenders, if strictly following the Council of Mortgage Lenders guidelines, may not be prepared to finance you out of the bridge for 6 months, so you need to know that the deal will stack up with 6 mths worth of bridging costs potentially being included.

A lot of stock ends up in the auction because there may be title issues, condition issues or in the case of a lender repossession they have to be seen to be getting the best price on the day, which the open auction is designed to achieve.

You also need to factor in that the 10% has to be paid on the day in cash (or draft) and you will lose it if you cannot complete because the fall of the hammer is deemed the actual exchange of contracts. Some auctions are also 14 day completion so watch out for those.

So what I would say is don’t discount it out of hand if you do not class yourself as experienced in these things, but do your own due diligence. Get the auction catalogues, select some suitable properties, view them critically, and decide what you think they are worth with all the tools that are available on the internet, go to the auction BUT DON’T BID! Just see what they go for and what sorts of people are buying them.

I would suggest you need to visit at least 5 or 6 auctions as an observer first to get a feel for things. If it is then right, surround yourself with the people who can help you, a capable broker like ourselves, a solicitor used to completing in auction timeframes (extremely important) who can also scrutinise the legal pack first, possibly a tame surveyor who might look at the property for you for a “drink” and maybe a builder who can give you the “warts and all” costs to turn the property into something that will have value.

The bane of my life is the amateurs who have watched only a few episodes of “Homes under the Hammer” or Sarah Beeny’s “Property Ladder” and think they can do anything.  Good luck to them if they enter into this sort of transaction, as long as they go into it with their eyes wide open, but many don’t, and remember the auctioneer’s guide prices are just to get people through the door and put “bums on seats”, they often bear no resemblance to what these properties may go for, but they alone obviously get some potential purchaser’s juices going.

We are often asked to help with funding auction purchases for commercial or investment purposes and we frequently need to resort to some form of bridging or short term funding to achieve that.  Do give us a call if you have seen something in an auction catalogue that catches your eye, but do it early on and we can do our best to guide you through the process should you intend to be successful bidding at auction.  Contact us here for further details.

It appears, finally, that someone has woken up to the fact that the lenders bailed out by the UK Taxpayer are not delivering on their promises to support the SME sector with business borrowing.

I was tickled by a comment on the BBC news this morning (09/02/10) from a spokesman from Lloyds Bank claiming that they are not lending to businesses as much as they agreed because no one is applying to them.  This is wildly off the mark as our experience has proved to us with banks making it fairly difficult to submit any proposition with a better than even chance of getting past their underwriters.

I am old enough to remember when the local bank manager had authority to grant facilities and as they lived on the doorstep they had their finger on the pulse of how their branch interacted and supported their local business customers.  They understood businesses and worked with them to move forward.

Times changed as the business lending function was centralised and faceless individuals made all the decisions and the idea of the old “Bank Manager in the Cupboard” (Midland Bank ads back in the 70/80s) went out the window.  It was at least starting to revert to the local Business Development Manager (BDM) having a much more hands on approach to local lending, when the common complaint at the time was that these people just got to the point where they understood your business and they were moved on to greater things and you have to tell your story all over again to someone new.

Then came the Credit Crunch (as we have all decided to call it now) and gradually the banks slimmed down their BDM teams and took any small link between small business and the bank decision makers away as EVERY transaction now has a tortuous task through the underwriting process.

We have always aimed to answer these faceless underwriter’s questions before they even get to ask them and that does mean having to garner much more background information from the client than was ever needed in the past, and these decisions being made about supporting small business are being left to individuals who firstly have never ever run a business in their life (I have always thought it would be a good idea for bankers to be seconded to industry for a portion of their development to see how the other half functions) and rarely if ever would lose their roles by saying no to an application.  After all they are only “protecting the Bank’s shareholders”.  The skill is in saying yes, and this skill is not being exercised as often as it could be.

The claim is that they are indeed still lending but at what price?  Definitely higher margins of at least 200bp above previous norms, double the fees, 40 – 50% shorter terms, much lower LTV’s and it is only the very good companies that can live with these.

My argument is that providing serviceability can be assured with a reasonable amount of headroom and the applicant is clean and paid for, the lenders should be looking to do everything in their power to help and deliver on the commitments made to the Government when they were bailed out in the first place.  They are in the risk business after all, and the rewards are very good now.

It just reminds me of Mark Twain’s apt definition “A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain”, well it has been raining but the sun is coming out again so let’s start sharing those umbrellas as promised.

The following is an extract from several articles posted by BT Business and Growing Business websites

New figures from Business Link have revealed that 45% of small and medium sized enterprises (SME’s) sampled have few if any systems in place to chase unpaid and overdue invoices

The poll of London SMEs also found that nearly a third are weak when it comes to management of their cashflow, while almost half have no idea of where their gross profit margin or breakeven point is.

These results have been released to coincide with the launch of Business Link’s new 10 point financial health checklist, which it hopes will help business owners keep their finances more in control. A copy of Business Links checklist can be downloaded here.

“Sound financial management should be the bread and butter of every business, especially during these tough economic times,” according to Matthew Perkins, a senior Business Link advisor, reporting to the British Chambers of Commerce

Smaller businesses (those with less than 10 staff) fared worse in the poll. Only 50% had a structured process in place to chase unpaid invoices compared to 72% of larger SMEs.

Perkins added: “As we head into the recovery period, understanding where your money is, following up your unpaid debts and knowing what your profit is, are vital to keep your business in the black and head for growth.”

We see many companies where this has become an issue and can introduce our Associates who have the skills to help point your business in the right direction, why not visit our website and we can see whether we can help.