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Merchant Cash Advance 101 – Everything UK SMEs Need To Know About Business Cash Advance #1 – Alternative Sources of funding for SMEs

Running a business, of any size and nature, eventually boils down to how well you can handle the numbers. There are, of course, the important calculations about growth and reinvestment, but, as far as the day to day operations are concerned, it’s all about managing the cashflow.

Larger businesses have it slightly easier in this regard. Bigger pockets usually ensure better credit, thereby also implying that such businesses rarely have to borrow in order to look after everyday expenses.

The same, however, cannot be said about an SME. SMEs have a whole different set of questions to answer, and the answer usually lies in how easily, how conveniently, how fast and how affordably they can borrow money. This is where alternative sources of finance come to the fore as many of them have the ability to mould themselves to the exact needs of your business.

Merchant cash advance is among the most popular alternative funding sources for UK SMEs, and we will try to take stock of its features in this article.

What Is Merchant Cash Advance?

Merchant cash advance, also known as business cash advance in many circles, is a fast, unsecured business loan that helps SMEs tackle the cashflow problems. Merchant cash advance is a cash injection that is tied to your future debit and credit card sales. In that sense, merchant cash advance or business cash advance is a good source of alternative funding for B2C SMEs.

Merchant Cash Advance Definition

Merchant cash advance is an unsecured business loan that is repaid through the future debit and credit card sales you make.

Unlike other business loans and overdrafts, there are no fixed monthly repayments to make. There is no APR to worry about either. The equation is fairly simple – the more sales you make, the faster your loan gets repaid. This also means that if you’re experiencing a particularly slow month, your repayments will be proportionately smaller.

Each merchant cash advance account is tied directly to your card terminal (point of sale). So, it’s important that a healthy share of your sales comes through debit/credit card transactions.

Merchant Cash Advance – How It Works

Merchant cash advance is inherently different from other unsecured business loans in that it is based directly on the profitability of your business. Lenders, while assessing the potential of your business, will take a close look at the performance of your business – especially the card terminal transactions. Due to this peculiarity, it becomes important to understand how merchant cash advance really works.

The Process – Take A Moment To Familiarise Yourself With How MCA Works

Merchant cash advance lets you borrow money as and when you need it – but it’s technically not really a loan (we will get down to that part shortly). For now, we suggest you take a moment to understand the process and how it will impact your cashflow.

  1. Any SME that makes card terminal sales can apply for a merchant cash advance. Commercial Finance Network makes this process incredibly easier and faster.
  2. The lenders take a look at the recent history of card based transactions and decide your affordability. This is similar to other forms of credit and loans.
  3. Once the lender determines your affordability, you’re presented with a cash advance offer.
  4. After you accept the quote, the money is transferred directly to your bank account. This process is smooth and involves minimal paperwork. Working with an experienced whole of market broker like Commercial Finance Networks means that you will have the added advantage of speed. You can expect to see the funds in your account in 1-2 business days.
  5. You will start paying the money back to the lender as soon as the repayment period kicks in. The repayments are usually based on your daily business (5-25% of your daily card sales, depending on the offer you’ve agreed to).
  6. There is no conventional interest rate or APR. You’ll essentially be selling a fixed percentage of your future sales to the lender until the advance is fully repaid along with the fees and charges. An upfront interest amount is calculated using the “factor rate”.

Merchant Cash Advance Factor Rate – What It Is & How It Is Calculated

Every MCA quote you will receive will specify a certain “factor rate”. This number essentially replaces the traditional interest rate and tells you everything you need to know about the cost of borrowing.

The factor rate is expressed as a single number that typically ranges between 1.1 and 1.5 (depending on the health of your business and your affordability). For example, if you’re borrowing £10,000 from a lender and the factor rate is 1.1, you will be required to repay £11,000 in total. It’s really as simple as that.

There are a few things to consider here.

The factor rate differs from the APR/interest rate on two counts. Firstly, it is a fixed number that tells you exactly how much you will need to pay. Secondly, it has nothing to do with the balance of the advance that’s unpaid. It doesn’t matter how quickly you pay the MCA off, you will still pay the amount determined by the factor rate.

Merchant Cash Advance Is Not Really A Loan

In the traditional sense of the word, a loan is the amount you borrow and pay back as a function of the interest rate and time. Therefore, it should be easy to see why it’s not a good idea to treat a merchant cash advance as a loan.

As we mentioned earlier, when you borrow money using an MCA, you essentially agree to sell a part of your future revenue to the lender. The lender assumes much less risk here, even though it’s an unsecured mode of credit. We would go so far as to argue that a business cash advance/merchant cash advance is an unsecured counterpart of revenue based alternative sources of funding for SMEs (for example, invoice finance).

How Much Can You Borrow?

Larger businesses usually don’t feel the need to borrow via MCA since they have at their disposal stronger lines of credit from banks and other lenders. SMEs, on the other hand, can borrow enough to tie up the loose ends, get the cashflow in order and access money to fund purchase orders/new business opportunities.

At Commercial Finance Network, we help UK SMEs borrow anywhere between £2,000 and £200,000 as a cash advance from our panel of responsible and specialist lenders.

Please note that the amount you can borrow will depend upon the following factors:

  • The nature of your business and the industry/sector you operate in
  • The average daily turnover (card terminal transactions)
  • The overall profitability of your business

There’s no need to feel overwhelmed by these factors – these are essentially the same factors that lenders will look at while assessing any other loan application.

Please read on to learn more about how we, at Commercial Finance Network, make it easy for you to apply for and get a merchant cash advance from UK-wide lenders.

Merchant Cash Advance – A Short Case Study

Being a leading whole of market commercial finance broker, we get to work with businesses of all sizes. This gives us a unique vantage point regarding the requirements of UK SMEs. The following MCA case study will help our customers and readers understand the practical importance of merchant cash advance as a financing tool.

We recently worked with a London based mobile food startup. Their business model was interesting and had already received a good deal of positive PR in local circles. However, at less than 18 months of age, the business had no history of credit to fall back on, meaning that they couldn’t borrow the money required to grow their business from banks and high street lenders. To receive more funding from investors they already had on board, they had to hit a monthly sales target – a target they couldn’t possibly reach without investing in a new point of sale (a financing catch 22 situation). This meant that they needed at least £20,000 to buy a new van and hire 2 more employees.

After understanding their unique situation, we forwarded their application to a specialist MCA lender who agreed to assess their business.

The following terms were drawn:

  • Cash advance: £20,000
  • Factor rate: 1.20
  • Total amount to be repaid: £24,000
  • Average card sales forecast (per month): £9,000
  • Average card sales forecast (per day): £300
  • Percentage of daily card sales to be paid back: 33% (£100)
  • MCA repaid in around: 240 days (8 months)

As the borrowing business received the money in just about a couple of days, they were able to invest it back readily. This opened up an additional revenue stream for them, and as they reached the targets laid down by the investors, they were also able to access a new line of credit.

Merchant Cash Advance – Who Is It Suited For?

Merchant cash advance is suited for SMEs that:

  • Require money urgently
  • Register significant card sales on a daily basis
  • Operate in cash rich industries and sectors

Are You Eligible For A Merchant Loan (Merchant Cash Advance)?

You’re eligible for a merchant loan if:

  • You’re a UK based business that accepts card payments,
  • You have a merchant account,
  • You generate at least £2,000 in card sales each month (over a minimum of three months),
  • You are a registered business (sole trader, partnership or limited company)

Advantages Of Business Cash Advance (MCA)

Now that we’ve seen how MCA works, let’s now see what advantages it has to offer to the borrower.

1. It’s Fast

The most important advantage is the speed. When you work with an experienced broker and specialist lenders, you can expect the entire process to complete within a matter of hours. This not only saves you a great deal of hassle, it also lets you put the money towards the requirements as soon as possible.

2. It’s Flexible

Since there is no interest rate to worry about, you know how much you’re going to have to pay back. This makes merchant cash advance incredibly flexible. On a good day, you will pay more and on a slower day, you’ll pay that much less. In other words, you will never be put in a position where you have to stretch your finances thin just to make the repayment.

3. No Need To Draw From Your Cash Transactions

You will only pay back a part of your card sales. You will still have full control over all the cash sales you make during this period.

4. No Collateral/Security Required

MCA is an unsecured form of credit. You will not be required to raise a deposit or collateral to get approved.

5. Poor/No Credit Shouldn’t Be A Problem

Most lenders tend to approve merchant cash advance applications from SMEs that have poor/no history of credit as long as the business performance is promising.

6. MCA Works With All Major Card Terminals

All major card terminals and machines are compatible with the auto debit facility for card sales.

7. MCA Can Be Topped Up

Some lenders provide the option of topping up your existing MCA account based on your history of repayment and business performance. This allows you to borrow more as and when required.

Relative Shortcomings Of Business Cash Advance (MCA)

  • Merchant cash advance is not at all suitable for businesses that do not accept card payments.
  • Young businesses that have little to no history of card sales find it difficult to get approved.
  • While MCA helps you gain access to funds faster, it also means that your daily cash flow will be impacted as long as the advance isn’t fully paid back.

How To Apply For A Merchant Cash Advance?

Merchant cash advance is a specialty form of financing. As is the case with all such finance products, it’s always a good idea to work with specialist lenders. Generic high street lenders don’t have the expertise or experience required to make such deals work, and the borrower has to face the brunt in the form of an unreasonably expensive offer.

At Commercial Finance Network, we help you get fast, flexible and low factor rate MCA offers from some of the most experienced and trusted specialist lenders across the UK.

Applying is easy – just fill in this form to message us or call us on 03303 112 646 to speak to a merchant cash advance specialist.

A Merchant Loan Can Be Used The Way You Want To

Unlike a mortgage or asset finance, merchant cash advance can be used to fund any and every business requirement as you see fit. Common examples include:

  • Opening up a new location
  • Managing the daily cashflow
  • Staff salaries
  • Funding new purchase orders
  • Refurbishments
  • Advertising and marketing
  • Purchasing new equipment
  • Investing
  • Paying off other loans

Make Merchant Cash Advance Work For Your Business

Given the number of positives it brings on board, merchant cash advance is undoubtedly one of the most versatile financing tools an SME can rely on.. To know more about how an MCA can help you grow your business and take care of emergency requirements, call us on 03303 112 646. You can also apply for a merchant cash advance directly by filling in this online form.

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Why credit scores are like grades

The simplest way to understand your credit score is to think back to your school days.

Think back to a time when your performance was measured in letter grades. Basically, having a great credit score is equivalent to being an A student.

Or, for people at the other end of the spectrum, having a low credit score is much like being a C or D student. If you just think about your credit score in terms of the letter grade system, the comparisons are easy.

And, the reality is that your parents or teachers were somewhat right — your grades can determine your future, like the fact that high school grades were a large factor in where you could go to college. Well, just like that, your credit score influences the types of loans you can get, as well as the types of interest rates you’ll pay.

But it’s important to understand that your credit score (unlike your grades) does not necessarily “go down in your permanent record.” Nope, the credit scoring system is much more forgiving! Your credit score is always changing, and you definitely have control over how it will be in the future.

You can’t go back and retake Calculus junior year, can you? But let’s say your credit score is not exactly perfect — a few late payments on cards, or loans — it doesn’t mean lenders will blacklist you for life. If you get your financial house in order, which is often as simple as starting to make regular on-time payments on your credit cards and loans, then over time your score may rebound. While your school transcript will always show that C+ in AP History, your credit score only shows your current creditworthiness. It lets lenders evaluate how much of a risk you are, as well the type of interest rates you’ll get, whether for credit cards, a car loan, a personal loan or mortgage.

The system is cyclical: lenders report your payment history to the credit rating agencies (the three major agencies are Equifax, Experian, and TransUnion), and they act as a kind of hub, a place where your payment performance is centralized and can be accessed by lenders. This “hub” helps creditors make decisions much faster. Today, with our online capabilities, lenders can approve or deny applications almost instantly. In addition, your credit score is free of biases. It isn’t influenced by factors such as race, religion, marital status, or gender. And it’s a great system in that your credit score doesn’t scar. It isn’t permanent. It changes with you and your habits over a lifetime. You know how sometimes you look back at school and think “if only I knew then what I know now?” Well, with your credit score, you can always learn to do it better!

Take the next step: protect your credit and start saving money.

Source: True Credit

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FinTech in the UK is driving better access to lending and leasing

Access to capital can mean the difference between business longevity and business insolvency. Many UK businesses, particularly SMEs, either lack the access to capital or they find it takes a long time to secure funding from traditional offerings.

In the context of the digital economy, lending and leasing customers, such as manufacturers, retailers and logistic firms, expect to be able to request quotes seamlessly and in a timely manner. Customers don’t have the luxury of waiting for weeks which could cause issues within their supply chain and impact on the ability to fulfil current and future customer demands, or the payment of suppliers for services rendered.

According to a report by PWC (2017) the global asset finance market in 2015 was worth more than 3.9 trillion pounds. With the rise of disruptive non-banking entities providing competitive financing solutions, lending and leasing is becoming a high growth and highly competitive sector for traditional service providers to continue to play within.

There is a golden opportunity for traditional banking and finance institutions to tap into the lending and leasing market, however, a key challenge is that their systems are not fit for the digital age. This means that businesses go for the path of least resistance and choose a challenger offering, which are able to provide a quote in a matter of hours rather than days, weeks or months.

The prevalence of inflexible systems, manual processes, and siloed data management at traditional banks can lead to a high level of operational inefficiencies. There is a clear need to provision for an overhaul and consolidation of core IT infrastructure.

The key to providing an enhanced lending and leasing customer experience is to work with third party tech providers. By forming partnerships, banks are able to tap into digital technologies that can transform their processes to enhance customer experience. The provision of a multi-channel self-service, provides real-time business insights leading to greater productivity and flexible workflows.

A flexible IT architecture through the opening up of APIs is the key to achieving a competitive advantage, such as loan processing and collection, screening, credit scoring and underwriting all as one end-to-end process.

At the same time, financial technology is transforming the way entrepreneurs and SMEs apply for loans in the UK, driving greater equality to access financial products and to support their growth. These businesses are currently being under-served by traditional financial providers which may become irrelevant if they do not catch up with demand.

Small and growth businesses previously were at the mercy of local financial providers can now access a range of services including peer-to-peer lending, accounting software, financial management, insurance, and business valuation services – all as one complete offering.

Source: FinExtra

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Why don’t banks care about SMEs?

For a service sector dealing almost solely with numbers and structured data, the world of small business lending could not be better suited to disruption by digital machines.

But recently, Bank of England governor Mark Carney rightly pointed out that, despite small and medium sized enterprises (SMEs) facing a £22bn funding gap, almost half don’t plan to use external finance, citing the hassle or time associated with applying.

The governor announced that the Bank would therefore champion a data platform to help SMEs have an easier time when applying for credit. The vision builds on Open Banking, bringing together data from a wide range of sources including Companies House, HMRC, utility companies, and telecommunications firms.

With a single “data passport”, SMEs could easily apply for finance at dozens of providers with the click of a button.

So how has it come to the humiliating point that the industry’s own regulator is proposing innovations that could accelerate growth and improve customer service? What are the banks’ armies of IT and product development staff doing?

The governor’s comments underscore a failure by banks to embrace the digital economy and invest to keep pace with the changes happening to their customers.

SME owners don’t just expect their bank’s lending process to be as seamless as their personal loan applications – they also expect banks to recognise how the financial makeup of firms has changed thanks to the digital revolution. Most SME financing from banks is centred around equipment or property assets, but digital services firms have neither.

Innovative finance providers, including my own company, have already embraced the data sources that the Bank of England will promote to open up access to finance.

Powered by new data connectors like DueDil, TrueLayer, and Codat, we automate the analysis of public data, bank transactions, and accounting records to make it faster and easier to provide credit to small businesses. Since launching, we have facilitated over £100m of lending to growing SMEs, and are rapidly expanding our operations to help more businesses across the country.

So why haven’t traditional banks made similar investments in order to price loans in the digital age? In my view, the reason is simple: it is not profitable for them to do so.

Under Basel III – the global rules governing how banks are regulated – banks are directed to hold almost double the amount of capital against an SME loan compared to a buy-to-let mortgage, for example. Holding more capital means making less profit, so all else being equal, banks naturally double down on loans that require lower amounts, such as mortgages.

And so we have seen banks close branches, sack business lending sales teams, and fail to innovate, while instead channeling more lending into the unproductive housing market, rather than the productive SME economy.

While challengers and fintechs are happy to lead the innovation in business lending, without structural reform of banking capital rules, we are unlikely to see strong competition from banks.

This is a challenge that Carney’s successor must tackle if the UK is to unleash the full potential of its SMEs.

By Greg Carter

Source: City AM

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Government provides £200m for small firms as Brexit threatens EU funding

The UK government has handed over £200m to help support smaller businesses in the 2019-20 financial year as the future of European Union funding remains uncertain.

The Treasury announced today that it has made the cash available to the British Business Bank, which provides loans to small companies looking to increase in size through investment and venture capital firms.

Chancellor Philip Hammond suggested in the 2018 Budget that £200m could be made available “to replace access to the European Investment Fund [EIF] if needed”.

The EIF is an EU agency that has been a significant source of funding for small UK businesses that struggle to get credit, but Brexit means British firms look likely to lose access to this money over the long term. The Federation of Small Businesses (FSB) today voiced concerns over the loss of EU funding.

The Treasury said the money will be available from today and will cover this financial year. Further funding arrangements have yet to be made and will depend on Britain’s future relationship with the EU.

Venture capital and investment firms will be able to approach the British Business Bank, a public-private partnership, to bid for the extra £200m to invest in small UK firms.

Business minister Kelly Tolhurst said: “This funding, supported by the government-backed British Business Bank, will play a key role in supporting innovative firms access the finance they need to grow and thrive.”

British Business Bank chief executive Keith Morgan said: “We welcome HM Treasury’s confirmation today that this allocation of £200 million is now available to increase provision of much-needed scale-up capital for innovative businesses across the UK.”

The national chairman of the FSB, Mike Cherry, said: “The British Business Bank provides vital support for thousands of smaller firms – particularly in parts of the country where funding is hard to come by – so it’s good to see it receive another £200 million following the launch of the £2.5 billion patient capital programme last year.”

“However, with Brexit on the horizon, serious questions regarding future funding for a UK small business support network that’s heavily reliant on the EU remain unanswered.”

He said: “A promised consultation on the post-Brexit Shared Prosperity Fund that would replace EU funding streams is yet to materialise. The £200 million is welcome, but we need to start thinking much bigger about future investment in the small firms that make-up 99 per cent of the UK business community.”

By Harry Robertson

Source: City AM

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UK small businesses plan ahead despite Brexit paralysis

More than two in three (68%) small business owners have put plans in place to grow their business over the next three months, and even 59% those that fear they will struggle to survive in an uncertain year are working on positive plans to turn their business around, according to new research from Hitachi Capital Business Finance.

The findings come at a time when the proportion of UK small businesses predicting growth has hit a five-year low (down from 39% to 34%). Nonetheless, despite prolonged Brexit uncertainty, the new Hitachi data reveals a tenacity and determination among the UK small business community to keep calm and carry on, even through an unprecedented period of political and economic change for the country at large.

The Hitachi data also suggests it is Britain’s youngest small businesses that are the most can-do in putting growth plans in place for the first three months of 2019. Overall, 87% of business owners aged under 35 have been working on new growth plans (compared to 55% of those aged 55 or over). Further, the UK’s youngest businesses (those trading for less than five years) were most assertive in working on new growth initiatives (71%). With London and Manchester growing as the UK’s top tech hubs (and cities for tech jobs), the Hitachi research also noted that London (78%) and the North West (71%) were the regions where small businesses were most likely to be tackling Brexit uncertainty with proactive growth plans.

What are small businesses prioritising to achieve growth?

As part of the latest instalment of Hitachi Capital Business Barometer, which tracks small business outlook and confidence over time, Hitachi asked a nationally representative sample of 1,177 small business decision makers which initiatives they were considering in order to achieve growth in the three months to April 2019. The results paint a picture of what the small business community will be prioritising during the critical Brexit transition period in the weeks ahead.

Keep costs down and carry on

The number one issue for small businesses was controlling fixed costs. During a period of rising rents, business rate hikes and a weak pound, 41% of respondents said cost control was a top priority to help their business grow in uncertain times.  As the perceived importance of cost control hits a five-year high, a further 18% of respondents said they intended to tackle late payment. Despite recent moves by the Government to tackle this issue, there is no evidence that anything as dampened this issue for small business owners. Concern over tackling late payment is at its highest level since the start of 2017.

Cashflow remains king

Improving cash flow has also hit a five-year high as a priority for small businesses to tackle (22%). The perceived need to tackle this issue was most prevalent in the manufacturing (40%), distribution (38%) real estate (38%) and retail (33%) sectors. It was also a bigger issue among larger SMEs with a turnover of £10m or more – ventures that have more complex infrastructures and bigger cost bases to manage.

Expanding the business footprint

Expanding into new overseas markets (16%), hiring more people (15%) and investing in new equipment (12%) were all popular initiatives to secure growth, although in all these areas there was a slight dip on 2018, suggesting some small businesses could be putting on hold physical expansion plans until there is greater certainty on the Brexit outcome.

Looking an industry sectors, small businesses in agriculture were most likely to be planning to invest in new equipment (31%). Expansion into new overseas markets was led by the IT and telecoms sector (49%) and enterprises in the media and marketing sector (34%). Small businesses in the IT and telecoms sector were also those most likely to be hiring new staff in the months ahead (35%).

Initiatives that small business owners are considering to achieve growth in the three months to April 2019

Q1 2017 Q3 2017 Q1 2018 Q3 2018 Q1 2019
Keeping fixed costs down 37% 32% 36% 37% 41%
Improving cash flow 20% 19% 19% 20% 22%
Being stricter with getting paid on time (e.g. from clients) 17% 17% 14% 16% 18%
Expanding into new markets/ overseas 20% 15% 18% 15% 16%
Hiring more people 17% 13% 15% 16% 15%
Investing in new equipment 14% 11% 13% 14% 12%
Reassessing finance commitments 8% 8% 8% 10% 8%
Streamlining supply chain 6% 6% 6% 6% 6%
Seeking financial funding via a partner/ company other than our bank 6% 5% 5% 5% 5%
Moving to a different location/ bigger office 5% 6% 5% 6% 5%
Securing financing to replace a vital business asset(s) 2% 1% 2% 2% 2%

Gavin Wraith-Carter, managing director at Hitachi Capital Business Finance said, “We are all living with political and economic uncertainty at the moment, and getting used to living with it will become the new norm for most businesses in 2019. It is heartening to see so many small businesses going towards uncertainty and seeing it as a time to improve their business, get it in better shape and achieve growth. For smaller businesses that can adapt faster and move quicker, 2019 could be a year of great opportunity.

“That said, finance is going to be key, possibly more so than ever. At a time of uncertainty, cutting fixed costs and strengthening cash flow will be a fundamental requirement for many small businesses in order to simply operate. Beyond that, getting the right kind of finance deals and support is crucial.

“More than ever before, small businesses need access to specialist financial solutions that can nurture growth and expansion without placing undue pressure on cashflow. At Hitachi Capital Business Finance we have a range of financial products that do just that.

“Our heritage is in manufacturing not banking and as a leading finance provider we are in the business of helping small businesses growth through all the stages of an economic cycle. It makes business sense to help business customers stay in business and grow – and we will be expanding our support for the small business sector during 2019.”

Source: London Loves Business

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‘No deal’ Brexit prompts expectation of increase in demand for business loans

As predictions have emerged of an upsurge in borrowing demand from SMEs if a ‘no deal’ Brexit occurs, owners of small businesses are being urged to fully acquaint themselves with the terms of a personal guarantee backed loan, before signing on the dotted line.

Todd Davison, director of Purbeck Personal Guarantee Insurance said, “It is widely anticipated that there will be an increase in demand for loans as SMEs look to introduce additional working capital buffers in a bid to ride out any impact on business following a “no-deal” Brexit.

“Additional funding to aid cash flow may help to offset downturns in trade or disruption within the supply chain. But the reality is that most commercial funding will need a Personal Guarantee and this commitment should not be taken lightly.

“As the UK’s only provider of Personal Guarantee Insurance to SMEs, we would urge the Directors of SMEs to fully consider their options and the risks, particularly in the current uncertain economic climate.   It’s vital Directors seek independent advice, and ensure they have investigated what alternative funding may be available.  If a Personal Guarantee backed business loan is the right solution, they should ensure they’re comfortable with all the terms of the guarantee.”

Top facts to check before signing a personal guarantee for a business loan:

  • How will the lender enforce the guarantee?
  • Can the lender serve notice or seek payment on demand?
  • What exactly constitutes a default?
  • Do the terms allow for any remedy period upon default?
  • How will your net personal assets be assessed prior to the giving of the guarantee, and is this is likely to change?
  • Does the contract state that the lender must exhaust every other avenue before making demands on you?
  • Have you considered the cost of obtaining personal guarantee insurance?

Todd Davison concludes: “Personal Guarantees are likely to be requested by every business lender. Directors of small businesses should be clear on the terms of the guarantee, and should have contractual clarity on all eventualities. They should be as genuinely objective as they can about the financial prospects of their business and its commercial value too. It’s essential to remember that a Personal Guarantee is not a hypothetical assurance, creditors can and will enforce them.

“Because they significantly increase risk for the borrower, Personal Guarantees can cause enormous stress. It’s therefore advisable to get Personal Guarantee insurance against the risk that the Guarantee is called by a lender. It will offset any outstanding obligations called in under a Personal Guarantee. The level of cover is based on a fixed percentage of the Personal Guarantee the company director wishes to insure and this is dependent on whether the corresponding finance facility is secured or unsecured.”

Source: London Loves Business

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Alternative funding sector buoyant despite Brexit concerns

The alternative funding sector ‘sustained its willingness to think outside of the mainstream’ in 2018, according to Independent Growth Finance (IGF) boss John Onslow, although Brexit remains its “single greatest barrier”.

IGF provides flexible, asset-based funding to small and medium-sized enterprises (SMEs) across the UK.

John Onslow told Insider more companies are turning to alternative finance as it can be “key to achieving real growth without diluting equity”.

He added that the market had been driven by high liquidity levels in 2018, as well as high publicity for the sector itself.

However, on the UK’s exit of the European Union, Onslow said: “Uncertainty over Brexit has caused some investment to be deferred this year and the implications of Brexit remain the single greatest barrier. 2018 has challenged the resilience of business.”

Research by IGF found that 500 SMEs in the £1m to £100m-turnover bracket said Brexit was their greatest concern. A third had experienced problems with funding requests being rejected, along with issues relating to slow decision-making or turnaround times.

Onslow added: “Political considerations – including Brexit and highly-profiled trade wars – have captured the consciousness of even the smallest SME.

“Despite the SME Health Index finding business confidence has declined, in IGF we have seen a sustained stream of SMEs achieving real growth in 2018, working hard to drive their momentum.”

The firm has also overcome challenges by working with business introducers across the UK and by investing in its staff. In the 12 months to 30 September 2018, IGF’s funds advanced were up by 70 per cent.

“The challenge is to stay relevant and ahead of market trends, whilst delivering value for money through excellent service,” Onslow told Insider.

IGF is headquartered in Redhill, Surrey. In November 2018 it was named Insider‘s Alternative Funder of the Year at the Central and East Dealmakers Awards.

Source: Insider Media

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Best Ways to Fund Small Business

Small businesses may need extra funds for various reasons. When a market is growing, the company will be in need of additional money.

Clients could be late on paying the invoice, or some clients may cancel collaboration with your business. Small business needs steady cash-flow to get ahead of the competition and grow on the expected rate. Small business financing is not a difficult task, but it includes lots of tools. Today we would love to compare different financial tools.

Traditional Bank loans

After a market crash in 2008, getting traditional bank loans became very hard. That’s a complicated process, especially for small businesses. Most of the small business has no huge credit history with financial institutions so that they will end up with a declined request.

Banks always ask you about lots of stuff. They will ask about the past relationships with the banking system, and you may also give them your business credit score. As for today, it’s a very tough task to get approved by the traditional bank loan system. Banks only accept up to 25% of applications. As for the quick cash, traditional banking loan is not an attractive financial tool.

Business Line of Credit

When financial institutions give you access to a certain amount of money, it’s called a line of credit. They give you a chance to access specific budget whenever your business needs.

That’s exciting tools for small businesses. The company can take any amount from that budget and replenish it anytime. As you recharge it, you can start the same cycle again. That’s a win-win position for both, small business and financial institutions.

Unlike the traditional banking loans, you don’t have to follow a specific monthly schedule to pay for credit. With a line of credit, you take the money and replenish it anytime your company can use the payback.

Keep in mind that a business line of credit is only for a certain amount of money, and you can’t use for big goals.

Invoice factoring

It’s a very easy and straightforward process. When a small business has unpaid invoices, owners can get in touch with “factoring” companies and sell unpaid invoices to them.

It’s not a traditional loan; your company gets paid for the work that’s already done. Well, it has some side effects you may face while using it.

The factoring company will need access to personal information of customers so that it may be a problem for small business. Most clients don’t want to give their personal information to third parties so that they will complain. Be ready for complaining from customers, if you choose invoice factoring as a financial tool.

As for today, there are different ways to fund your small business rather than traditional banking loans. You may need to hire new faces in the company or buy new equipment for efficient work. No matter what is your reason, as a small business owner, you’ll always be in need of extra funds. Steady cash flow means too much for companies, so choose a reliable and trusted financial tool wisely, before going for it.

Source: FinSMEs

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How the Autumn Budget will affect SMEs

The Chancellor’s Budget announced earlier this week by Philip Hammond has promised an ‘end to austerity’ for Britain. With numerous policies to help first-time buyers, lower incomes and housing, we look at how the new Budget will impact the SME marketing in the UK.

A significant change will be the Chancellor’s attempt to help fledging high-street businesses, who have certainly felt the pinch over the last year, with noticeable casualties such as House of Fraser, BHS, Byron Burger and Jamie’s Italian.

In a move to better the current situation for high street businesses, Hammond has pledged to cut business rates by a third for all retailers with a rateable value of £51,000 or less for the next two years. This will help retailers save up to £8,000 per year and that includes high street shops, pubs, restaurants, cafes and other small business owners that are losing ground online.

A further £675m has been assigned as a Future High Streets Fund, to aid the transformation of the UK’s high streets, to improve footfall and regenerate areas in need of redevelopment.

For entrepreneurs, the start-up loan scheme originally founded by Rt Hon David Cameron will be backing a further 10,000 new businesses – this includes seed funding, start-up capital, merchant loans and business finance. A further £200m has been put aside by the British Business Bank to replace funding which they are likely to lose from the EU following the Brexit deadline in March 2019.

For SMEs that take on apprentices, the training bill will be reduced from 10% to 5%, and the government will pay the remaining 95%. Those apprentices aged 16 to 18 and working in companies of less than 50 will continue to have their training full funded.

Losing out from the Budget will be the powerhouse tech companies who started abroad but operate in the UK and use schemes to avoid paying tax. Pointing out the likes of Google, Facebook and Amazon, the tax will be imposed on those firms with a global revenue of £500 a year and the increase in tax will put £400 million back in the UK government, when it comes into place in April 2020.

Elsewhere, a scheme has been planned to offer interest free loans those struggling with debt caused by high cost credit – relating specifically to unauthorised overdrafts, rent to buy and payday products. This will be based on a consumer level and not impact businesses or sole traders using guarantor, personal or bridging loan products.

UK roads and infrastructure are expected to get a huge boost at just under £30bn in investment and first time buyers in shared ownership schemes will have their stamp duty scrapped – giving them a saving of £10,000.

Source: FinSMEs