Starting Up

Piecing together the perfect finance package for your business

What to look out for

  • Red A funding package relies on multiple applications to different lenders
  • Amber Increase the total amount of finance available by using a range of lenders
  • Green Mix and match! Reduce the overall cost by making the most of differing repayment terms

Reduce the cost of borrowing for your business and make the most of applying for the right finance to meet your needs.

What sort of funding do I need to expand my business?

I’m guessing that you need help funding different elements and a guide to sources of finance for your business expansion?  In which case, it’s probably best to split the borrowing up into different agreements and match the terms to your needs.

Why would I want more than one loan liability?

Do you recognise this scenario? You take on a new member of staff to sell your products. They need a van, you need extra stock for them to sell and of course you are going to have to pay them wages before they actually start generating any income.  In this scenario, you’re funding both working capital (wages and stock) and asset purchase (van).

Why don’t I just apply for a term loan, cash flow loan or even look at peer-to-peer lending to cover everything?

Yes, any of those would work but you need the funds for different purposes and, more likely, for different periods. Your stock, for example, will hopefully be sold within a few months, so you don’t want to still be paying for it in two years’ time.

Why the rush to pay for everything now?

It may take your new employee three months to start generating sales to cover their wages and the extra stock that you had to buy, but the van is probably going to be an asset to the business for a lot longer than three months. Therefore, why the rush? It’s unrealistic to expect to cover the cost of all three in such a short period.

Let’s look at paying for the van. You could use Asset Finance over say three years because of the longer-term benefits to your business and look at one of the other options for the relatively short-term working capital requirement to cover wages and stock.

Won’t splitting my borrowing requirements make it more expensive?

No, it should actually reduce costs. Why? Because the Asset Finance company have the security of the van to lend against, whilst the amount of the other funding - which is likely to be more expensive because it is unsecured – is now reduced because you have taken the van out of the equation. Also, you are paying for the van over say three years, which obviously reduces the monthly cost.

You’re actually asking each lender for less money, reducing their risk, which might make it more attractive for them. That could be reflected in the terms they offer you.

What are the downsides of applying for different finance?

The main one is that you could end up dealing with more than one lender - and more paperwork.  That said, lenders will often be asking for very similar information so it could be a case of duplicating the answers. If this leads to the best and cheapest solution, then the extra time will be well spent.

There is nothing to stop the package being made up of more than two products. An extra option, for example, if you are trading in a business to business environment and raising invoices. You could also include invoice financing to bring your sales income forward.

Give one of our team a call to talk through your financing options.

Uesful links

Business loans: How to bring cash into your business

Commercial property finance: Securing a commercial mortgage

Business funding: How to decide on the right type of finance

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