By John Landers
Business Finance Services
THERE is little doubt that price is a major factor when business owners and directors consider new funding facilities for their business: but are the cheapest facilities always the best and most appropriate?
At BFS we have seen many examples of where the answer to the question is No!
We have recently been engaged to help a farming family business who several years ago took on £16m of loan facility from a leading bank at very attractive rates. They chose the option purely because it had the cheapest charges over other offers. However, the offer was on the basis that the bank received charges and negative pledges over all the business assets, which represented over £30m of tangible security.
When the business realised that they needed some additional short-term support the bank refused to help them. They refused to release any element of their excess security in order that the business or family could raise additional facilities. They also insisted that any proceeds from asset sales would be used to reduce the bank’s exposure which cut off another potential avenue for the business to raise additional cash
Two months ago we managed to secure the business £50k against an unsupported personal guarantee from one of business owners. This bought the business much-needed time. We are now close to finalising a further £400k secured facility after the bank reluctantly agreed to release a property from their charge security.
The management now accept that the funding of their business needs to move away from their incumbent bank and their facilities need to be restructured. This will involve a mix of agricultural and commercial mortgages, asset finance and other secured loans that are set up to reflect the seasonality of the business with repayments set up in line with their peak cash generating months.
Yes, the money is more expensive but it will be there when the business needs it and will avoid the disruption and costs associated with not having the cash.
At BFS we believe there are many businesses that are holding themselves back by trying to hold on to existing ‘cheap’ facilities and do not always consider the opportunity cost of suppressing their business potential by not taking on the more flexible funding required to develop their business.
The real message that we are trying to put out is that, when looking for funding for a business, cost should always be high in terms of importance and affordability. However, if the cheapest is not appropriate for the requirements of the business, it could turn out to be expensive.
If you think you may have such a situation then give us a call at Business Finance Services on 0137 349779 or email us at Even better, come to our seminar, taking place at Franklins Gardens on the 29 June (details on our website).
You’ll be amazed how we can help!