Finding finance for your business
One of the major problems that businesses face is obtaining finance.
This was particularly the case when the banking sector came close to meltdown two years ago. Even though the worst of this should be behind us, the fallout has left an ultra cautious banking sector completely at odds with the often repeated mantra about being open for business.
In addition, the proposed tighter restrictions placed on banks from 2012 under the Basel Committee on Banking Supervision guidelines to meet higher liquidity and capital requirements will surely see bank lending even harder to come by for companies.
So, where does that leave businesses looking to expand or continue operations and needing finance in order to achieve this?
Typically, finance is either that of a term loan or overdraft, although the latter is becoming less common with overdrafts typically being converted to term loans at the banks’ insistence.
A fund portfolio
Businesses have to think in terms of having a portfolio of funding sources as opposed to just obtaining finance through their bank.
The first and obvious solution to a funding requirement can be found close to home, via the directors themselves, either by way of loan or share allotment. This is usually the cheapest form of finance although the risk of losing personal cash if the company folds can be a deterrent.
Factoring and invoice discounting have become mainstream finance solutions enabling quick cash release on valuations and applications. In reality these forms of finance are taking over from the traditional overdraft facility.
Delayed payments to creditors and prompt ones from debtors, if handled with care, ease cash flow problems. Acquiring assets on a hire purchase or leasing basis also enables cash flow savings to be gained. Instead of depleting cash reserves financing a monthly amount, typically over a period of three to five years, is far less onerous.
Ensuring that applications for payment are made instead of raising sales invoices is simple enough to do and can ensure that large VAT payments can be avoided until the money has landed in the bank.
Finally, don’t forget that the government’s Time to Pay scheme will continue for the foreseeable future.
Even spreading tax payments over a matter of months can have dramatic cash flow benefits.
In summary, while the banking sector is the first port of call for a business, it need not be the last!