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Finance Decision

I work with a lot of food and drink companies which have problems with money. I have been a food and drink company which has had trouble with money. I have, on more than one occasion, had to scrape around using credit cards, personal savings and personal overdrafts to pay staff at the end of a month.  Like many others, I too have lain awake at 3.00am wondering why I have money worries.

Overtrading is the usual cause. Too much ‘work-in-progress’, where stock is being built either for orders or a seasonal demand. Suppliers want paying, staff want paying, HMRC wants paying with PAYE and VAT, but customers don’t want to be paying because they all have the same issues.  Hence a shortage of money.

What can you do?

Don’t borrow more money!  Not until you have exhausted some of the other options. But if you do have to borrow money; make sure you get the right sort; at the right price, for the appropriate length of time and with the flexibility that you need.

At the bottom of the page is a form where you can confidentially request further information and to be put in touch with a specialist who can help you find your required finance.

Finance Decision Tree

Debt Finance

Debt will in-theory be cheaper than equity, why?

Debt finance, secured or unsecured is just that debt. You can pay that back. Equity, that is shares and that means you can’t just buy it back unless you have some agreements and even then, they have tax, legal and transactional costs. Debt is fairly simple then when compared to equity.

Now, debt is priced on the basis of what risk you post to the lender. If you are a non-home owning new business with no trading history and a balance sheet that doesn’t have share capital value then lenders will either decline or require both some other security (personal guarantee, debentures etc).

There are some things that you can do to ‘tidy-up’ the balance sheet and get yourself into a better position to be a borrower. If the company has been trading for a while and you have invested money in via a director’s loan account, then converting that into share-capital might be a way of making the company worth more to a lender. However, you need professional advice and that method will incur costs.  Have you got your own personal credit history in-order? Making sure you are a good risk might mean that you can actually borrow before the business does and by lending to the business there might be personal tax benefits later.
Assuming these options are not open to you then it might be equity is the way forward.

Asset Finance

If you are familiar with Hire Purchase (HP) then this is similar form of finance.

Frequently, if you buy a piece of capital kit such as a filling machine, you will be offered asset finance. It basically means that whilst you have the asset on your site you can borrow against it so that the money is secured on that asset.

This is a popular way of avoiding having cash tied up in equipment when it could be funding much needed working capital for the business.

Asset finance is a competitive and specialist option. Finding a company that understands how the assets are employed in your business and their residual value is key to getting the right deal deal.

Remember this is secured finance so the rate should be competitive. But the asset finance company will own the kit until the last payment. Hence the comparison with Hire Purchase.

Equity Finance

Other people’s money?

  • Equity breaks down into several options and the right one for you depends…..
  • How much do you need?
  • Do you need it long-term and or is it likely that you will need money in several tranches to realise the plan?
  • Would some equity finance facilitate making some debt finance available? In some cases development banks will lend if they know the due-diligence has been done by a syndicate of equity investors making the debt finance both less risky and less costly in management time.
  • Do you want a benevolent investor who has previous experience in the sector that can offer advice, open doors on potential customers and suppliers and make things happen quicker or do you want to avoid the potential interference?

Do you understand the legal and likely obligations that introducing equity finance will bring?

Crowdfunding is often held up as the quick and easy fix that opens the door to loads of money and yet as it’s a crowd you won’t have to deal with the individuals (don’t bank on it)

Have you got a good story that would lend itself to the crowdfunding model remembering that in most cases of crowdfunding you have to provide the crowd which means marketing yourself to consumers and to potential investors.

Finance enquiry form

Please complete the form below and we will put you in touch with a specialist who can help you find the right finance source for your project.

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