Richard Leeder recently helped a new client to navigate the Business Finance Maze after they ran out of essential capital at the worst possible moment.
A well-established contract building company who make money year in year out, but face all the usual pressures on cashflow, approached us when they needed funding quickly to satisfy a commercial mortgage lender.
Having gone over the original 12 month term of their agreed facility the funder had come to view the progress of the works. The original Victorian building had been gutted inside to make way for six 2 bedroom flats and four 1 bedroom flats; this seemed to worry the lender (they deemed the property to be in a worse state than 12 months ago, but our client argued it needed to be gutted to allow the rebuild!) and they only agreed to allow the extension of the credit facility if the builders could demonstrate that they had £220,000 available to complete the works.
The director of the company with the remit for raising finance was polite but reserved, happy to discuss the potential funding that we had available but seemingly a little disillusioned: ‘Of course this is all academic; in 14 years banking with our high street bank they have never extended us any credit. Last month we needed skips on site and were told we would have to pay up front, our credit status didn’t warrant terms.’
With three directors in the business we identified our first possible route to finance – to raise each of them a personal loan that could be introduced into the business, and repaid from the business bank account. Within 48 hours we had £110,000 approved and paid out. In some respects, this gave them an added benefit as they have each increased their ‘skin in the game’ with individual investments back into the company (fully unsecured) plus these personal loans will be converted into directors loans. Finally, we approached a Peer to Peer funder who arranged £50,000 working capital.
When added to their available capital, they now had the necessary £220,000 and were able to get an extension to the commercial secured finance and move on to completing the build.
Another working capital issue the business faced was a Corporation Tax bill of £30,000; imagine the directors’ surprise when informed that SMEs can now finance this short term cost with an unsecured business loan! This was placed with one of our top-tier panel lenders, with repayments agreed over 10 months.
That is £190,000 delivered in under a week for a business that failed to get funding from their bank for skips!
Fortunately, not all funders are looking for AAA and Tier 1. With more and more funders joining our panel and our experience in raising the capital required, at the best rates and quickly, it is very rare that we fail. The Bank may be unwilling to support you, but that doesn’t mean there isn’t funding available.
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