By Peter Douglas
Business Finance Services
DAVENTRY-based business finance broker Business Finance Services (BFS) believes SMEs are entering into a period like no other experienced. The problem – the need to manage cash flow demands arising from supply, staffing and customer challenges that will flow the coronavirus. Never has the saying ‘Cash is King’ been more appropriate to businesses looking to get through the coming months.
For businesses that require additional funds to get through there will be money available via Government support (if you understand where to access it) and many privately backed funders. Unfortunately, not all funders promoting themselves as ‘very much open’ for business do so out of a sense of public spirit but because they are opportunists. They recognise that business owners will be desperate. Promises of making cash available in 24 to 48 hours can be full of pitfalls particularly where supported personal guarantees are required – there will be SME owners and guarantors that will take out loans that may save their businesses today but could result in them losing their home a few months down the road.
This may sound dramatic but, as brokers who pride ourselves on doing the best for our clients, we are being approached by some lenders who are telling us they are very open for business, lenders that we would never recommend to clients because of the way they operate, putting guarantors’ homes at the forefront of their security requirements.
Although not fully extensive, BFS has put together some Do’s and Don’ts for SME owners:
Do’s
* Talk to your existing funder to see what help they may be prepared to offer
* Seek out banks and lenders that offer the Government backed Coronavirus Business Interruption Scheme
* Consider requesting repayment holidays, interest-only terms or bullet repayments.
* If you require additional funding seek facilities that can be supported by the assets within the business
* Ensure you take independent legal advice if giving personal guarantees particularly if this involves fixed or equitable charge security
* Be honest with yourself – will raising extra funding be enough to see you through the coming months
* Consider the consequences of not been able to repay new funding. Are you prepared for associated risks – it’s is one thing losing a business it is another losing your home!
* Seek help from a trusted and recommended professional finance broker, accountant, lawyer or even given your circumstances insolvency practitioner
* Ask HMRC for ‘time to pay’
* Check if you qualify for a £3,000 government grant aimed at the 700,000 smallest businesses
* Reclaim sick pay once they have confirmed the mechanism for doing so.
Don’ts
* Let price drive your decision making – the cheapest loan may not be the best loan – a more expensive loan with interest only payments may be better than a cheaper loan with capital payment requirements.
* Get locked into fixed term loan or finance agreements that do not allow early provide early redemption terms
* Borrow money unless you have cash flow forecasts that indicate you can service the loan repayments.
* Overlook the impact this disaster may have on customers’ ability to place new orders and pay for invoices in line with normal terms
* Forget all loans will need to be repaid and, if you or someone is providing personal guarantees, they will be enforced i.e. the guarantor will be asked to repay the business loans personally in the case of default.
* Provide any personal property security whether fixed or equitable without taking legal advice and preferably, have such advice confirmed in writing.
* Be misled by the terminology ‘unsecured’ business loan. In most cases a personal guarantees will be required.
The real message is take professional advice when seeking extra funding in these unprecedented times. It has never been more relevant. In case of doubt give us a call at BFS on 0800 093 5240 or email us at and we will be happy to advise you or introduce you to legal advisors if appropriate.
Remember: The only thing more expensive than taking professional advice is often NOT taking professional advice