FINANCE FOR SMALL BUSINESSES
by David Napier
The management of your company finances can be the make or break factor for your business. Here David Napier of Napier Business Consultants talks about one aspect of business finance.
On 14 January 2009 Lord Mandelson, Secretary of State for Business Enterprise and Regulatory Reform (BERR) announced a package of support to address the cashfow, credit and capital needs of businesses.
As a commercial finance broker with over 27 years banking and finance experience the announcement of a temporary replacement for the much maligned Small Firms Loan Guarantee Scheme (SFLGS) was welcome news indeed. The Enterprise Finance Guarantee (EFG) is similar to the SFLGS in that to qualify a business must demonstrate to the Lender they have a viable business for the future. The Lender continues to carry the risk of 25% of the loan and will therefore continue to apply their normal due diligence when assessing a proposition. All the familiar High Street Banks will lend to eligible business under the EFG and many secondary Lenders too albeit, some of these will only offer EFG when another lending product typically, Factoring or similar has been granted alongside.
The EFG provides 100% funding and eligible businesses are able to borrow between £1,000 and £1,000,000 through the Government Guarantee.
Sounds great and it is. So why is it mine and my peer’s perception the banks perhaps are reticent to lend utilising the EFG? One reason could be that the default rate for the SFLGS has been an alarming 60% in the recent past. It could also be that Bank’s are not seeing quality propositions through their doors or it could be that the supply of money and money available to the banks to lend has dried-up? In reality it is probably all 3 and possibly many other factors.
Please do not let this put you off though. The EFG will allow the refinancing of existing debt, including the conversion of part or all of an existing overdraft into a term loan in order to release capacity within the overdraft limit for working capital requirements. Naturally the Lender must be prepared to continue to provide an overdraft and be comfortable with the serviceability of both term loan and overdraft.
The EFG will allow for investment by businesses seeking to grow and or develop. You may also fund working capital through the EFG. Most Small Medium Enterprises (SME’s) in the UK with an annual turnover of up to £25,000,000 are eligible. However, exclusions apply to businesses in agriculture, coal and steel sectors and to individual export orders.
One of the major differences to the SFLGS is the ability of the bank to take personal guarantees. To be fair this reflects the way bank’s normally work with business to share their lending risk. What will not be permitted is a direct form of legal charge e.g. direct charge against an individual’s principle residence in support of the guarantee.
So what’s the cost I hear you ask? Well the Government will charge a premium of 1.5% this year and 2% thereafter. Lenders fees will vary.
If you need assistance in gaining access to this, or other, financial solutions, Napier Business Consultants will be delighted to help your business meet your business growth aspirations.
napier Business Consultants
m: 07835 404167
e: david (at) napierbusinessconsultants.co.uk
w: www.napierbusinessconsultants.co.uk