Lending For Trading Businesses
Trading business finance falls into several categories, rarely just the one which is a something that most high street lenders fail to understand.
As a result many businesses too often shoot themselves in the foot and then wonder why things went wrong; and we see the same thing happen where clients have used a broker who is not a commercial specialist.
Before you apply for business finance you must realise the pitfalls of getting it wrong;
By getting things wrong or using a non- specialist broker you could endanger your chances of getting finance and certainly reduce the options you have available to you.
The Problem With Traditional Lenders
By traditional lenders we mean those easily accessible to everyone; typically, these are the big banks. Traditional lenders have a range of products and a set process. They will try to fit your business into how they work; you will always come second.
Ask yourself this:
– Do you want a quick decision with funds made available to you in hours not weeks?
– Are you fed up of needing to provide every bit of information under the sun and still getting a no?
– Your heart and soul go into your business, you don’t want to use your home as security for a bank loan?
– You want to talk to someone who understands and will listen to what is really going on in your business?
– The process feels complicated, and urgent, and you are confused and need clarification and you don’t know where to go?
These are all typical requirements of the businesses that we help source trading finance.
What Is Trading Finance?
It comes in many forms as you would imagine. Consider it to be anything that enables your business to trade. Some of the most popular reasons companies seek finance are for aspects such as;
There are many reasons why a trading business would want to borrow. If you know you need to have finance in place, we will do the rest, just know that you have options and that advice is there to be sought.
Getting The Right Solution
The big problem that many small and medium sized enterprises (SMEs) face has already been mentioned. Historically, the borrower has been made to fit what shaped solution the bank can provide. This means that the solution offered is rarely ideal; it is always a ‘best fit’ with the bank dictating the terms of the agreement.
Bear in mind also that the big banks are reining in overdraft lending (it has reduced 37% in 5 years, that’s £7 billion less being made available to the SME), so having a solid solution you can rely on is more important than ever.
To get the right solution for your business we look at what you actually want to achieve The process is something like this;
Finding The Right Finance
Let’s start with a blank canvas
Forget being focused on a product, be it overdraft, loan, mortgage etc. Why do you need the money? Identify your real reason for borrowing for your business.
Sometimes there are alternatives. Sometimes, the seemingly obvious answer is not the right answer.
What is the plan going forward?
Whatever you do now will impact on what you do next. Funding the cash flow needed now when that need will change in 3 months isn’t practical; we need to look further ahead than just the present.
If you are taking a loan now and may want to do more in the future then let’s make sure we don’t adversely impact affordability or break existing loan covenants, as doing the wrong thing can backfire.
What’s your risk?
We need to consider the shareholding, your personal assets, your personal situation. Did you know that giving a personal guarantee when borrowing for your business could affect your approval rating for a personal mortgage? Your personal situation has to be considered.
The price of borrowing is sometimes linked to the lender’s risk. What price do you put on reducing your personal risk? Is secured or unsecured borrowing the best option?
Credit & Financials
How well do you understand your financials? The lender will form a first impression when looking at the numbers. Let’s make sure we both understand those numbers, what they mean and why they show what they do. What is the Balance Sheet like? What is the company and personal credit history? What do the bank statements look like?
The answers to these questions could potentially narrow the choice of lenders available to us.
By understanding your business properly we can ensure access to as wide as possible a choice of lenders.
The big thing you will have noticed in reading thus far is that, with us, the financials and credit part of this process comes last. Most clients think this comes first; many brokers do too. Putting the financial assessment first is like buying a birthday present before asking whose birthday it is; you might, through luck, choose what the person really wants, but it’s unlikely. So why do it when raising finance for your business? It makes no sense, and yet many companies and brokers still do it.
If you are looking to finance your business, please get in touch and let’s talk.