Business Finance – a customer’s perspective.
Types of finance:
Overdraft: This is the core business lending tool – everybody should have one! A useful pot of free cash to cover purchases from paper clips to computer systems (and sometimes cars and capital equipment). When the pot is full, your bank manager will simply poor its contents into a business loan and you can start all over again. Also very useful for deposits on buy-to-let properties. (note: the overdraft is not really borrowing, more a status symbol to show how much your bank managers likes you).
Business Loan: One size fits all. Mainly used for new starts, struggling business and as a receptacle for full overdrafts.
EFG Loan: It’s guaranteed by the Government, so they have to approve it.
Commercial Mortgage: Used for commercial premises and buy-to-lets. All your lender will need to know is how much deposit you have (see overdraft) to establish loan to value. Repayment is not important.
Factoring / invoice discounting: Instruments of the Devil. Only ever used by companies that are about to go bust. Plus your customers will hate you.
Hire purchase / Leasing: Mainly used for cars and big machines. The dealer will sort it for you.
Venture / angel capital: Easy, free money. All you have to do is chat for a few minutes to some wealthy investors. If they try to interfere in how you run your business, ignore them. Oh, and don’t let them nick their money back when you come to sell after all your hard work.
Grants: Easy, free money, readily available, particularly for random start-ups (to be on the safe side, best to describe it as a ‘revolutionary on-line concept’). All you have to do is ask around and fill in a few forms.
Trade finance: Used for stocks. Anything from baked beans to motorcycles.
Refinance/remortgage/sale and leaseback: I’ll tell you what it’s worth and you lend me 80% of that amount.
Credit Cards: If all else fails, use credit cards. You can juggle interest-free ones for years.
Terms you need to know:
Deposit: The core component of borrowing. For business loans and overdrafts the bank are obliged to match any money you put in. For other products, if the lender says no, you can simply offer a bigger deposit (see overdraft and credit cards) and they will approve.
APR: The only stat you need to know to establish cost, value or appropriateness. The APR on a commercial mortgage is lower than on credit cards, therefore a mortgage is better. End of.
Personal guarantees: In the unlikely event that the deal is declined even though you’ve offered a deposit (or if your overdraft or credit cards won’t stretch to a deposit) you can offer a personal guarantee. At this point the lender is legally obliged to accept the proposal. If it all goes wrong, you can post on the legal section of a forum to get out of your guarantee.
Adverse credit: If asked whether you have any adverse credit (eg CCJs) say no; they probably won’t bother checking. In the unlikely event the lender comes back with details of CCJs., look perplexed, promise to investigate and blame it on a bookkeeper/accountant/office manager you had to fire.