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| Asset Finance – How is it best used and how it can help? |
Comments from Christian Humphreys of SHM Smith Hodgkinson for Manchester Evening News ‘Flexible Finance’ feature January 23rd 2007
“Asset Finance can quickly generate funds for business growth or development. Put simply, asset finance is essentially borrowing against an asset or assets that are utilised as security for a loan.
“There are many products available - sale and leaseback is a popular option, allowing for capital to be provided to the company in the form of a percentage of the asset’s value.
“Finding the appropriate funding source can be difficult and may prove to be a challenging process. The following points should be considered:
• Disclose the facts – Lenders like to know what the past, present and future position of the business will be.
• Be focused – The company needs to decide how it is going to use the funds. Simply saying it’s for ‘working capital’ is often not enough to satisfy funders who prefer to know specifically what it will be used for and how it will benefit the business.
• Provide management information – the provision of accurate and clear information such as management accounts, details of contract orders, assets to be purchased and any other information deemed relevant to the funder, is vital.
• Plan well in advance – Make sure the company plans its borrowing time line realistically. Plan in some additional time and allow some contingency for the amount and cost of borrowing for unforeseen events.
• Be realistic – Plan for various different scenarios, don’t assume – perhaps a reduced level of funding at a higher price. This will help to manage company’s expectations and avoid disappointment.
• Select preferred funders – Funders often keep records of businesses that are looking for funding. Look around and decide which funders are the ‘best fit’ with regard to both financial and personal service terms.
• Engage funders early – By involving funders in the planning process at an early stage, means that you can work together to ensure the right deal at the right price.
• Be patient – Some lenders take longer than others to reach a decision, so companies have to make sure they build in plenty of time before they actually need the funding to allow for this.
• Make it personal – Lenders are people-led service businesses – find the right partner and build a long-term beneficial relationship from this.
• Keep in touch – Once funds are successfully secured and borrowed, invite the lenders to see how their money has been used. This engenders confidence and trust in the relationship, making future requests for funding from the funder easier and facilitates a smoother process.”
What is Invoice Discounting?
“Invoice discounting, is a funding service offered to companies based on the value of a business’ accounts receivable ledger. Many companies trade on terms (30 days invoicing), which realistically can take 60 days or more to be paid. This affects cash flow and can restrict business growth or development in addition to increasing strains on the company’s financial position. Invoice discounting is growing faster than factoring due to the confidential nature.
Invoice discounting is widely used throughout the following sectors:
• Manufacturing
• Wholesale
• Distribution
• Transport
• Clothes & Fashion
• Food Manufacturing
• Paper and Printing |
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