Light on the horizon

Published by John Walsham on 20 January 2021

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There is light on the horizon, positive signs we believe should give many firms optimism for the year ahead. We are currently seeing an increase in Mergers and acquisitions (M&A) activity across a number of sectors and there will be consumers that will have a surplus of income that they haven’t had the opportunity to spend. And nobody is going to want to stay in following months of lockdown restrictions.

If you would like to build up a cash buffer to help your business with the recovery ahead, then there are still a number of funding options available. You can still revisit the funding options available for your business.

Here are several practical steps to help your business.

Now is the right time for all business owners to review their balance sheet and consider where their assets are and how they can leverage in the most efficient and cost-effective way.

Consider whether there is a better way to fund the future rather than the traditional facilities of an overdraft or a loan. For example:

  • Could the business borrow against its stock and or debtors? Businesses that trade with other businesses can take advantage of invoice financing, releasing up to 90% of an invoice value could be a game changer for cashflow.
  • What plant and machinery does the business own? An asset finance facility using the assets as collateral could release much needed cash into the business or refinance existing agreements onto longer and cheaper funding.

How does a business move forward to access this?

There will undoubtedly be tighter credit policies in 2021 as lenders seek to manage their loan books and handle increased loan defaults. Personal guarantees and supporting bricks and mortar security are likely to be a fundamental requirement for any lending, so do not ignore the opportunity to make use of the Government loan schemes while they are still available until the end of March 2021. Consider borrowing now interest free for 12 months to create a ‘war chest’.

Businesses can access the Coronavirus Business Interruption Loan Scheme (CBILS) for asset and invoice finance and can have more than one CBIL as long as borrowing does not exceed more than £5m.

Don’t ignore the opportunity to refinance existing borrowing over longer and better terms together with a capital repayment holiday for at least twelve months.

Also, don’t be afraid about exploring the options available. If you decide that you want to seek finance, ensure you can show the lenders the scenarios you have modelled ranging from best to worst case with supporting rationale. You stand a much greater chance of success with an integrated package of information which ties together your future balance sheet, profit and loss and cashflow forecast into one concise document which a good accountant can help you produce.

The first steps to finding the best source of funding are to approach your existing lender; they will have built a relationship with you over time and have detailed information about how your business and how your accounts have been managed and they will want to prioritise their existing customers.

I believe there will be growth in the financing of stock/debtors in 2021 against the backdrop of delays in debtor payments and subsequently rising average debtor days which can be crippling for many businesses.

If your existing lender cannot support you, then we can support you with producing your funding request and we have access to over 100+ prospective lenders via an online funding platform including unsecured finance.

Now is the time to be proactive, so for further advice or guidance, please speak with your usual Kreston Reeves contact or contact me here.

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