Debtor fi­nance a pop­u­lar means to grow a busi­ness

NZ Business - - FINANCE | FEATURE -

In a tighter busi­ness credit mar­ket, a debtor fi­nance fa­cil­ity is be­com­ing an in­creas­ingly pop­u­lar fund­ing op­tion.

As a busi­ness grows, its re­ceiv­ables grow – there­fore what bet­ter way to fund that growth than through a re­ceiv­able based lend­ing fa­cil­ity? Man­ag­ing cash­flow is one of the most stress­ful as­pects of man­ag­ing a busi­ness. But with a well-struc­tured cash­flow fa­cil­ity, busi­ness own­ers don’t have that added pres­sure and stress of stretch­ing out sup­pli­ers and plac­ing un­due pres­sure on debtors.

Craig Brown, GM Lend­ing at Lock Fi­nance, says flex­i­bil­ity is the key ben­e­fit of their debtor fi­nance fa­cil­ity.

“We’ve had busi­ness own­ers come to us who do not have a large enough eq­uity in their prop­erty to sup­port an in­crease in their bank over­draft fa­cil­ity.

“We’ve been able to as­sist as we use the busi­ness re­ceiv­ables as se­cu­rity and not their per­sonal as­sets. Our fa­cil­ity has pro­vided the fund­ing to al­low them to grow re­gard­less of what the owner’s as­set back­ground is.”

So what in­for­ma­tion does a busi­ness owner need to sup­ply Lock Fi­nance in or­der to set up a debtor fi­nance fa­cil­ity?

“Like any pru­dent lender, we re­quire sim­i­lar in­for­ma­tion about the busi­ness as most other lenders,” says Brown. “We would re­quire fi­nan­cial in­for­ma­tion about the com­pany and some in­for­ma­tion about the own­ers.

“How­ever, one point of dif­fer­ence is that we can turn our ap­pli­ca­tions around very quickly. We don’t have to wait for a client’s final year-end ac­counts to be pre­pared by their ex­ter­nal ac­coun­tants. We can rely on a client’s cur­rent in­ter­nal ac­counts, which can also speed up the process.”

Brown says there are three things a busi­ness owner should weigh up when con­sid­er­ing fund­ing op­tions: • What se­cu­rity do they want to of­fer the lender? (Do you want to at­tach

your per­sonal house to your busi­ness bor­row­ings if you don’t have to?). • Price is ob­vi­ously a con­sid­er­a­tion. Get a cou­ple of quotes or of­fers so

that you know you are get­ting a good deal. • Suit­abil­ity of the provider and their fa­cil­ity. Over re­cent years banks have been lend­ing his­tor­i­cally cheap rates to busi­nesses by lever­ag­ing against the in­creased eq­uity in the owner’s house. That’s great if all you are want­ing is the cheap­est fund­ing avail­able. How­ever, you are then link­ing your largest per­sonal as­set to your busi­ness, which is not the best op­tion for as­set pro­tec­tion.

Also, does the fun­der have a fa­cil­ity that is flex­i­ble enough? Is the fun­der flex­i­ble enough to sup­port your busi­ness re­quire­ments? Not all busi­nesses run smoothly all the time.

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