Debtor finance a popular means to grow a business
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.