29 September 2014

Business Finance – FAQ

Business Finance FAQBusiness Finance – FAQ

These are some of the more common questions we get asked about business finance and commercial lending, the list is always being updated however we hope  it may help in answering some of the most common questions.

The Most Common Question

Why Use Lime Consultancy? That is best answered by our own clients who rave about our results, our testimonials stand out for themselves, we also have reviews on our Google+ page.

The simple answer is that the world of business finance has changed, there are more options and more things to know than ever before. We are self regulated by the NACFB for whom we need to attain professional standards, continued professional development and ensure we meet legal requirements, it gives us credibility and gives you comfort.

Try us, you won’t be disappointed. We really will make the whole commercial finance process a lot easier for you.

Glossary

At the bottom of this page we have a glossary of commonly used terms in commercial finance, if you find a term being used then it should be explained here. We hate jargon as much as you do, but sometimes we find ourselves using it with clients. Sorry about that…

The Bank Have Already Said No

Don’t worry too much. There are so many reasons why this happens. It is very often not a detrimental or negative thing, you may have been told why your application was declined but this is probably not entirely accurate.

Often banks have a preferred list of sectors or business types, it may simply be that you fall into a less preferred bracket. Don’t let it put you off, we can find the real reason and probably find a better solution for you.

Which Lenders Do Lime Consultancy Work With?

There isn’t an easy answer to this one as our lenders are constantly evolving. Our approach is to use business lenders that reflect our expectation of service, we also prefer to use commercial lenders who are affiliated to The NACFB.

Our decision on which lender to use is based on a profile of your business, the people in it and the level of risk/ risk mitigants. This means that we will only approach lenders who offer the level of finance you require and will have an appetite to work with you.

We do not work with every commercial lender in the UK. To give you an idea of how many lenders exist then see who attended the last NACFB national exhibition. We both take on new funders and cease to use funders based on our experience. We will also explain our reasons for using any lender we do, this gives you a rationale for our decision. Also remember that the final decision on what to do rests with you (the borrower), we give you all the information and rationale, the choice is always your own and that is the way it should be.

We Presently Trade At a Loss

Not uncommon for businesses that have just come through a recession. If you have traded your way this far then well done. Trading at a loss can mean that some business lenders will say no, it is simply a case of matching your situation to a commercial lender that will accept it.

Making losses for genuine reasons is fine. It may mean that funding comes at a higher cost, but it certainly does not rule out the potential to obtain finance. If you are working with your accountant on reducing profits then consider whether you may want to borrow in the following year, sometimes showing a profit and paying some tax can be beneficial.

I Don’t Have Security / Don’t Want To Give Security 

This is a common story. It really depends on the strength of your business as to whether security becomes an issue or not. It is also driven by the amount you want to borrow. You will find that mainstream lenders tend to always ask for security. Previously schemes like EFG would have circumvented this issue, but not any more.

There are solutions such as Crowdfunding, or other alternative lending schemes which can still offer sensibly priced finance and work around the need to commit everything you own to the lender. Remember that risk is important to a lender, you do need to show your commitment to your business. With this in mind a Personal Guarantee will nearly always be required, but it may also mean you not having to provide security. There are options.

Crowdfunding Makes Me Nervous

Like anything that you may not have come across before, nerves always exist. Crowdfunding itself is regulated by the FCA so comes with the same structure and regulatory monitoring as any established business funder. There are loads of different incarnations of crowdfunding, the easiest thing is to ask us the question and we will answer it for you.

In simple terms, all crowdfunding is is a different way of raising the capital that is being lent to you. It is something we really like and find offers a great solution for many businesses.

My Credit Rating Is Poor

Be realistic about this. There are many reasons why your credit rating is poor, or you think may be poor. Firstly, get a copy of your own credit report. Experian can do this for you. Once you have it then see what it really says. Often people think their credit rating is poor because they may have been told so by a bank, or have been declined borrowing. Get the facts then know what you are dealing with.

A poor credit rating does not always mean you cannot borrow. There are probably solutions there, it may just be that you have to pay a little more for them until your rating improves. It can be just as important to know why your rating is lower. The last thing you want to do is start applying for finance in several places as this can worsen the situation, let us match your scenario to the right lender. It is about pitching at the right level, a poor credit rating does not mean ‘no’.

How Long Does Finance Take

How long is a piece of string? It comes down to what you are wanting to do and just how challenging an ask it is. On the bright side we have managed to get same day agreements and drawdown within a few days. The easy answer is to give yourself as long as possible. There is a school of thought among lenders that the more urgent the deal is the less likely they want to do the deal, it generates suspicion and worry as to why things are so urgent; What has happened? Why so desperate? Etc..

Often the speed of obtaining business finance is important, but if you can look at options early then put them on hold then this is better than leaving it until the last minute. As a guide, if security is being taken then business loans can take from 4-8 weeks as a rule, for unsecured business loans then 1-2 weeks is more realistic.

How Do Lenders Measure Affordability

Easy answer. It differs every time. Over the last few years we have seen the major banks move away from looking solely at profit to looking at cash generation. It is important for you as a business owner to know the following;

  • How reliant am I on the business to fund my personal outgoings?
  • How much profit did I make, how much cash did I generate?

Cash and profit are very different things. Most lenders will look at what your business generates, then look at what you need to take from the business to survive. We also see lenders sensitise your accounts, this means they will worsen your sales, worsen your costs, then increase the costs of any finance or loan, only after this will they measure affordability.

If you are at all unsure then speak to us, we can explain it in more detail on a case by case basis. Loan affordability needs to be properly analysed and we will gladly help you with this.

What Is A Commercial Mortgage

It is a mortgage for commercial property, i.e. not for you to live in. There can be a cross-over between the two, sometimes a commercial property combines with your personal in the case of retail units with flats above, or a live-work unit.

Remember that a ‘Mortgage’ is the legal charge over the property. A ‘Mortgage’ secures the loan you are taking out. A commercial mortgage can be to buy property for your own occupation as a company, or as a commercial transaction to let or rent out.

Depending on what you are buying the property for depends on how much you can borrow and from whom. Lenders have very different policies for ‘owner occupier’ commercial mortgages to what they have for ‘buy to let‘ proposals. If you are at all unsure then get in touch.

 

Business Finance Terms Glossary

  • LTV – Loan to valuation. Expressed as the percentage of loan available against a property value
  • RIP – Residential investment Property. A normal buy to let mortgage
  • CIP – Commercial Investment Property. Same as the above but property for business rather than residential use
  • Drawdown – The time when loan funds are paid out to you
  • EOY – End of Year, normally used when referring to your annual business accounts, i.e. EOY March 2014 etc
  • MI – Management Information. This means the latest financial accounts for your business
  • BS – Balance Sheet
  • P&L – Profit and Loss accounts
  • Covenant – A condition added to a business loan agreement that you will be required to meet. Where a covenant is breached then the lender could call your loan in
  • CCJ – County Court Judgement
  • NPBT – Net Profit Before Tax, how much profit your business made on which it has to pay corporation tax
  • NP – Net Profit. Also seen as NPM, meaning Net Profit Margin, expressing your Net Profit as a percentage of your sales
  • GP – Gross Profit. The profit made on sales versus what those sales cost you. Best demonstrated in a food business where Gross Profit would be the cost of a sandwich less the cost of the bread and ingredients used. This is also often seen as a percentage in the same way as Net profit is
  • AIP – Agreement in Principle. Not a full agreement to lend to you. An AIP is given based on limited information, providing the information given is all accurate then a full approval should follow
  • PG – Personal Guarantee. Most lenders who lend to a limited company ask for a Personal Guarantee. This means that should the company not repay it’s commitments then the person giving the Personal Guarantee becomes liable for the debt up to the amount of the guarantee (if it was limited – some are not)
  • IO – Interest Only. This refers to a loan where there are no actual repayments being made and the borrower is only paying the interest cost, hence interest only. An Interest Only loan will need to be repaid through a means other than the regular repayments, please always be aware of this

For anything else then please contact us on 01293 541333 or contact us via the website. If you come across anything else that should be listed here then please provide the feedback and we can improve the resource further.

 

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