As the UK funding market eases a little more and more businesses who have been biding their time for the last three years are making their funding plans for the future, but wow,  has the market changed or what and the biggest retort we have been hearing over the last few weeks has been – Why so many questions?

Prior to all of the credit crunch challenges kicking off way back in late 2007, we as reputable brokers had a lot of commercial broker wannabes ‘Eating our Lunch’ what with the tick here “just say you can afford it”, “we don’t need accounts with this lender”, “the property prices will go up so no one is really bothered…” market place.  Where have they all gone? – Either out of business or back to their old haunts thankfully and the regime of the specialist business finance broker has returned.

Our clients however still have that old way of thinking and can’t understand why lenders want so much information to support a lending proposition, maybe the drop (from the June 2007 peak) in commercial values by 33% could be part of it, maybe it is the underlying attitude of bankers who are sometimes seen as not wanting to lend, or a raft of other factors.  So I thought I would create this Blog post as some answers and clarification of the current situation.

First off – the old ways are dead and not likely to be revived for an awfully long time.

What do lenders look at, well three distinct areas:

1. Who is the borrower, what is their experience, what is their credit history like, do they have the skills to make this project work

 

2. How will they get repaid, it will either be from the trading income from the business, the sale value if it is a development or the rental income in the case of the investments, and

 

3. What is the security worth, how easily could it be let/sold, or how could the lender get out of it if things ever go wrong.

 

Before late 2007 if no. 3 was attractive enough lenders would lend which is why we saw the proliferation of self certification lenders, where are they now – all gone – there is not one reputable one of them left that operates that way.  The current thinking – if you can’t satisfy no. 2 the case will go nowhere.

Ah yes but what do lenders want here? – They want certainty which was never a given anyway, their way around it now, well they look for stress rate testing (NatWest are stress testing with a base rate of 6% – when was the last time it averaged that?) and this makes a lot of ‘normal’ transactions fall over.

But what if they are happy with that, why all the other questions and information? Perhaps we can look at those:-

CV’s      

They need to know the applicants background and skills that relate to the proposition

Asset & Liability statement         

They need to know what assets you have and how exposed you are to third party lending so everything has to be included

Income & Expenditure statement

If you are living beyond your means (or not actually declaring all of your income) the numbers here won’t add up, and a credit search will quickly reveal whether these numbers are right

Three months personal bank statements (sometimes 6 mths)

How do you manage your personal money, do you keep within agreed facilities, is all your income showing, who are you paying money out to – if you have a credit card payment to a lender that wasn’t recorded on your A&L statement expect questions – do the bank bounce anything – all these and more can be revealed in consecutively numbered (original) bank statements.

Three or six months business bank statements

Much the same as the personal assessment – can you manage your money and does it all show

Three years trading accounts

The big one! – can you pay the lender back based on past history, are the accounts improving or static, how exposed is the business to external lending, what are you paying yourself, and what ISN’T showing and of course how historic these figures are ( if they are over a year out of date expect more questions)!

Whilst this list isn’t exhaustive, trading companies are often asked to provide aged debtor and creditor lists to show how fast you pay your bills and how skilled you are at getting your invoices paid on time – none of this was absolutely necessary with a lot of non conforming lenders in 2007, but it has come as a shock to many that they need them now.

The banks are claiming that they are still lending to viable businesses, but of course that is their assessment of a viable business, how are they ensuring that they don’t lose out?  Well firstly reducing the amount in LTV terms they will lend, by shortening the loans so they amortise faster, by refusing to accept interest only propositions unless the LTV is very low and at the same time charging interest margins and fees twice the level they used to – why because they can.

If your business is now at the stage where you need to be thinking about moving forward, give us a call and we can at least point you in the right direction as to what is possible, why not get in touch by clicking here now.

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.