Andy Elley explains how cash flow finance can be used to help your business, the costs behind this finance and what type of finance is available.
What is cash flow finance?
Cash flow finance (also known as unsecured lending) is a type of loan which is approved without the need for bricks and mortar collateral. Instead of securing the loan against an asset, such as a building, the lender will back the loan against the cash flow that the business generates. The money borrowed is used to fund further growth within the business itself.
The lender will look at the company’s performance history, business value and credit score to ascertain the applicant’s suitability.
Why would I use cash flow finance?
Generally, cash flow finance is a way of generating capital (freeing up cash) to put back into the business for a number of reasons. Some examples of this are:
- Meeting payroll obligations – paying for new employees who will generate further revenue to pay back the loan
- Management buy out/in
- Business expansion
- Cover recruitment costs
- Property refurbishments
- Asset/stock purchasing
Another benefit of cash flow finance is that it can be much faster to obtain compared to a secured loan, as the lender does not need to appraise the asset/collateral.
Who can apply?
Cashflow finance is aimed at established businesses with a good trading history, but who may not have any significant assets (such as owning property) to secure a loan against. For example, an established clothing company who successfully trades over multiple sites but who rents their stores.
To apply to a lender you will need to show:
- You are a UK citizen and a Director of a Limited company LLP or partnership
- 3 months of business statements
- Good account conduct
- The last 2 years of filed accounts, including a detailed profit and loss account
What types of loan could I get?
We have a range of lenders and the loans that you will have access to will depend on your individual circumstances, however to give you a flavour of what to expect…
This lender typically lends up to £350,000 and they can advance between 60% of turnover or 5 times adjusted net profits of the business. They require personal guarantees and 2 years’ minimum trading history; no adverse data is allowed and no CCJ’s over £1,000.
Their loan terms range from 6 months up to 5 years, and their interest rates are very competitive and are available from 1.9% per annum!
- Maximum loan value of £150k for share buy-back
- Non-homeowners can apply for up to a £100k loan value
- The loan must benefit the applicant business
- Able to lend to multiple companies within a group
We also work with a lender that facilitates growth finance for UK SME’s. They have over £700 million of institutional capital secured and lent over £112 million last year.
They have access to finance to support UK based SME’s with acquisitions, ‘management buy outs’ and ‘buy ins’ where the company has a minimum of 2 years track record, secured against the company’s balance sheet and cashflow. They can lend from £250k to £15 milllion.
Interest rates are available from 5.50% to 12% and a term of between 6 months and 5 years is available.
As per a cash flow loan, their loans are secured by a charge over the company and potentially with an unsupported personal guarantee. They also offer flexible repayment terms on loans up to 5 years.
They are also happy to lend to support Employee Ownership Trusts which can be very tax efficient for the vendors and the purchasers.
How do I access cash flow finance for my business?
This is where we are here to help! Our brokers are experienced in understanding you and your business, enabling us to find a lender who can provide you with the loan your business needs.
We will support you from initial enquiry, through to loan completion, to make sure the process is smooth and simple.
Get in touch with us today to find out how much money your business could secure.