Buying a business with finance is the simplest way to go about it, other than the buyer fronting up the cost themselves.
Depending on the amount involved in the transaction, you will need unsecured or secured finance from a specialist lender. The typical ceiling for unsecured finance is around £25,000 so most acquisitions will involve secured finance.
Lenders prefer secured finance for larger amounts because the amount is secured against property as a failsafe. This fact means you enjoy lower rates versus unsecured finance which will drive the total cost of purchase down.
Here’s what you need to do to get started:
Get the business valued
To raise finance with any lender you need a solid valuation of the business. Valuating a business is not a simple exercise so should be outsourced to an independent, reputable evaluator. And always, always get a second opinion. Only when you understand the value of the business should you proceed.
Raise your own money
It’s important you know that with any business purchase you need your own money too. Lenders are unlikely to fund the whole purchase price. You must assume some of the risk. 30% is the golden figure to aim for – that’s 30% of the total purchase price of the business in question. And the higher the better.
Collect financial information
Lenders will want a high level of insight into the business being purchased. They will want to review the business’s unaudited and audited accounts and review bank statements to determine solvency. Also, they will want to determine the financial status of the group or individuals buying the business. This is necessary for due diligence.
Demonstrate skills and knowledge
Lenders base their lending decisions on risk. Someone who knows what they are doing, either through experience or study, is far less of a risk than someone who doesn’t have any experience or knowledge. A cover note detailing your experience and how it is relevant to a takeover goes a long way to providing reassurance.
Create a professional business plan
Just because you are buying an established business this does not mean it will continue to be successful. To show it will be, a professional business plan is absolutely necessary to answer the lender’s questions and reassure them. You need to explain how funds will be used and how the business will be run. You also need a forecast, profit and loss account, up to date balance sheet and cash flow figures.
Find yourself the best possible finance
The quality of a finance product is determined by the lender, but there are variables you can try negotiating or tweaking to your needs. Fees, rates, payments and early settlement charges are the four variables in question. These differ from lender to lender. Do shop around for the right product but save your applications for the good ones (if you apply for finance too many times in a short period, this can count against you).
If your retail business is struggling with cash flow, there are actionable steps you can take right now to improve the situation. In this article, we’ll cover a few finance and fundraising options available to you.
- Consolidate existing debt
If you have several existing finance agreements, it makes sense to consolidate these into one larger agreement. This could reduce the overall amount you pay and will certainly make keeping up with your repayments easier.
It is possible to consolidate multiple refinance agreements into a new one and consolidate hire purchase agreements and finance agreements together. However, this depends on your lender so ask them about the possibility to do so.
- Seek a new payment merchant
As retail businesses grow one of their largest ongoing costs are transaction fees or payment fees. 1.5% of each transaction is normal with online businesses. A new payment merchant could offer you a much better rate to reduce your expenditure.
A small percentage decrease in transaction fees could make an enormous difference to your bottom line. You can try negotiating with your payment processor if you process lots of transactions or expect to see growth in the coming year.
- Liquidate excess inventory
Most retail businesses struggling with cash flow are struggling because all their cash is tied up in inventory. If this is the case and you need rid, it makes sense to liquidate it to raise money and hopefully claw back what you paid for it.
Put excess inventory on sale, list it on eBay or Amazon, bundle items with other products (such as a free X when you buy Y) or do buy one get one free offers. Pricing strategies can be a god send when you have excess inventory to get rid of.
- Make use of invoice discounting
Invoice discounting enables you to leverage the value of your unpaid sales ledger as a short-term solution to improving cash flow.
it involves leveraging money you are already owed. What invoice discounting does is advance you a proportion of the invoice amount. This is usually up to 80% of the invoice total which may be enough for your needs. If you are struggling with cash flow because you have unpaid invoices, this is a relevant solution.
- Release money tied up in assets
If you have valuable assets such as a POS system, computers, or machinery free from finance, you can release their value by refinancing them.
With such an agreement, a lender buys the asset from you and hires it back to you for an agreed term. This is not a loan; it is a simple purchase and hire back arrangement. You get to keep hold of the assets in your business. Come the end of the agreed term, assuming all fees are paid, ownership of the asset will pass back to you.
To find out more about refinance, call our team on 01234 240155. We have helped hundreds of retailers improve cash flow with it.
If your business has not started trading yet you can still take out finance, although the business must have been incorporated in the case of a limited company or registered with HM Revenue and Customs in the case of a sole trader.
Because you have not started trading yet you will find the number of lenders you have access to is smaller than if you were already trading. This is because many lenders want to see some history of trading and won’t lend to those who can’t show it. This would ordinarily be three to four month’s bank statements.
With this in mind, you will be required to provide other forms of reassurance to show you have means to repay what you borrow. These include:
A personal guarantee makes the director liable for the business’s debt in the event the business becomes unable to repay it. This is nearly always necessary with new business or start-up finance to mitigate risk.
Professional business plan
Because you are a new business your lender will want to see a professional business plan so they can get to understand your business. This will include financial projections and profit and loss with an explanation for how the money you borrow will be used. This insight will be invaluable for the lender in their decision.
Whether you are a limited company or a sole trader, your personal credit score matters because you are signing for the finance on the dotted line. Your lender will access your credit history through a company like Experian or Equifax to confirm your personal details, see how much debt you are in and see if you pay back well. A bad or poor credit score isn’t a deal breaker, but it could limit your opportunities.
If the amount you wish to borrow is over £25,000 or you have a bad or poor credit score, you will likely be required to provide collateral to secure your finance. This is especially true if you haven’t started trading yet. Collateral can be real estate, property, vehicles, machinery or anything else within reason, so long as it covers the value of the finance and is owned by you. It can’t be on finance already.
Types of finance for new business
Depending on how you intend to setup and operate your business, you will need unsecured finance or secured finance.
Unsecured finance has a lower finance ceiling, but it doesn’t require you to front up anything to get it. You will still be required to provide a personal guarantee though, which means it isn’t completely risk-free.
Secured finance has a finance ceiling up to £500,000 and is used in cases of larger amounts and in cases of poor or bad credit history. A personal guarantee is often still required but in return you get lower fees and rates.
If you would like to find out more about these finance types and which is best for your use case, please call us on 01234 240155.
Unsecured loans from banks can be tricky to secure if you have a poor or low credit score, or little credit history at all. The reason is risk. Banks risk profile each customer, largely based on what they see in your credit report. If their computer doesn’t like something, then it will spit your application out and say no.
The trouble with this is you rarely get an answer as to why. But more frequently than not, it’s because the amount you want to borrow is too much based on your credit profile. This is usually caused by a poor credit score.
One of the savviest ways around this in the case of making an equipment, vehicle or machinery purchase is to use a hire purchase agreement.
Under a hire purchase agreement your lender buys the asset for you and then hires it back to you over 12 to 60 months. At the end of the agreement, you own the asset, and your relationship with the lender ends.
You can look at this as spreading the cost. The actual cost of borrowing varies from lender to lender. In the case of unregulated finance, which is popular with businesses, the cost of borrowing is determined by the monthly fees. This is added onto the cost of your payments, the same as an interest rate would be.
The reason a hire purchase is easier to obtain than an unsecured loan is because the lender is effectively making a purchase of an asset which they then hire back to you. The lender becomes the owner of the asset. So they purchase an asset and retain ownership for the duration of the contract. This brings reduced risk, because if you default on your payments, they can just repossess the asset in question.
Risk and fees
This is the main risk to you – risk of loss. However, this is the same as with any type of finance. Loans, secured credit, unsecured credit – whichever type of finance you look at, all have some risk of loss. The difference with a hire purchase is the amount is secured against whatever the asset is. So loss in this case is the asset.
Applying for a hire purchase is much the same as with an unsecured loan, except the content of the application includes the asset, or ‘Goods’. Your payments should be fixed for the duration of the agreement, so you know exactly how much the cost of credit is.
You can work out the cost of credit by deducting your fees from your payments and multiplying them by however many months the agreement runs for. Make sure you also include the Purchase Fee, if applicable.
We can assist you in securing a hire purchase agreement for equipment, vehicles or machinery for your business. Contact us today to find out more. You can reach us on 01234 240155 or email us at firstname.lastname@example.org.
If your business has grown to the stage where it needs more space, then a congratulations is in order. You have successfully taken your business to another level, and it takes big commitment to make that happen. So well done.
After the purchase of your new building you may need to carry out improvement works, or renovation works, to bring it up to where you need it to be.
This could be something as simple as a fit-out, or something as complex as knocking through walls and rewiring the place.
You could pay with the cash you have in the business but doing so would deplete your reserves. It’s often best to keep cash in your business so you can boost operating capital as and when you need it. Borrowing what you need with finance enables you to access a lump sum and pay it back over a period that suits you.
Your options are simple: unsecured finance, or secured finance. Which is relevant to you depends on how much you need to borrow.
Do you need to borrow up to £25,000?
If you need between £10,000 and £25,000 for your renovation work, you may be able to take out unsecured finance.
Unsecured finance is taken out without the amount being secured against an asset. It is lent to you based on your credit score. Those who have a good credit score will usually be approved for unsecured finance. Those with a poor credit score may find it more difficult to be approved, or that lenders increase their fees. You can repay unsecured finance over 12 to 60 months to suit you.
Do you need to borrow more than £25,000?
If you need to borrow over £25,000, up to £500,000, you will be required to provide security against the finance amount. This is called a secured loan.
The type of security you provide, or asset, depends on the amount you need to borrow. If you need to borrow up to £50,000, a vehicle or two may do it. If you need to borrow more than that, you will probably have to front up real estate. This brings with it risk of loss and a charge will be placed over the secured assets. As with unsecured finance you can repay secured finance over 12 to 60 months.
Do you need finance for equipment?
If it is a fit-out you require and you only need finance to fund the purchase of equipment, such as industrial ovens or lathes, a hire purchase would suit.
With a hire purchase the maximum purchase amount possible is determined by what you can afford and your credit profile. You can finance several assets under one agreement and spread the cost over a maximum of 60 months. This makes the acquisition of expensive assets easier and keeps cash in your business.
We have a wide range of finance products suitable for retail renovation. Call us today to find out more. You can reach us on 01234 240155.
What does expensive mean to your business?
An industrial lathe at £10,000? A Fendt 1050 Vario tractor at over £300,000? Point is, expensive can mean different things to different businesses.
What all businesses agree on though is any machinery is acquirable with the right finance facility. Why? Because it allows you to spread the cost of your purchase. You can split the total purchase price of an asset over a term that makes monthly payments affordable. If this is something you want to do, you have a few options.
Unsecured finance is relevant if you need to borrow up to £25,000 to fund the purchase of machinery for your business. You do not have to provide collateral to secure the finance, but the main director of the business will need to provide a personal guarantee on it. You can spread the purchase over 12 to 60 months.
This finance facility is suited to businesses who do not have a deposit because it provides complete funding in one go.
Secured finance requires you to front up collateral to secure the amount. In return it gives you access to a higher finance ceiling – you can borrow any amount up to £500,000 secured, providing your business is solvent and healthy. As with unsecured finance, with secured finance you can spread it over 12 to 60 months.
Again, this finance facility is suited to businesses who do not have a deposit, or in cases where you need access to funds to negotiate a bulk purchase.
Hire purchase agreement
If you already have a deposit for the machinery, a hire purchase agreement is a savvy purchase method. With a hire purchase the destination is ownership. Your lender buys the asset for you and then hires it back to you. You pay back the lender over the term and come the end of it ownership passes to you.
A hire purchase allows you to spread the cost of high-ticket items over a term that suits you with manageable monthly payments.
Sometimes it won’t be possible for you to pay off the total purchase price of an asset, perhaps because it is just too expensive. If this is the case, a finance lease offers lower payments than a hire purchase because there is a balloon payment built into it which takes a portion of the asset value and locks it away.
There is a route to ownership at the end of a finance lease – you just have to pay the balloon and outstanding fees. However, most businesses return the asset. This makes a finance lease a good option if you only need machinery for part of its usable life.
Discuss your needs with our team
We can recommend the right finance facility for you based on the value of the equipment you need to purchase. To discuss finance for your business, call us today on 01234 240 155 and we’ll do our best to help you.
Refinance is a way to release cash tied up in assets. By refinancing your most valuable equipment, you can raise a significant amount of money in a short space of time.
Best of all, the agreement does not show up on your credit profile as debt because it is not a loan. It is a simple purchase and hire back agreement, in which a buyer (us) purchases an asset from a seller (you). We then hire that asset back to you. Note: this is not the case with all lenders, so please bear this in mind.
The asset stays in your business, fully deployable. Ownership transfers to the buyer but you retain exclusive usage rights for the duration of the repayment period. After which, ownership will pass back to you when all payments are made.
Repayments are made monthly, just like with regular finance. The key difference is equipment refinance releases cash in the asset with the loan secured against the asset, whereas a regular business loan is taken out by a director, business owner or business with the credit ceiling dictated by creditworthiness and turnover.
The key thing as to whether equipment finance is right for your business is how much money you need to raise. There is a finance ceiling with refinance and that ceiling is set by the value of the equipment in question.
When you look for a suitable agreement, note the LTV. The higher the better. It is not uncommon to find lenders offering an 80 or 90% LTV which means they will purchase the asset for 80 or 90% of its current market value.
Refinance could be right for your business if:
- You have valuable assets
- You have been turned down for traditional credit – perhaps because of a poor credit score or a number of recent applications.
- You want to pay off existing debt – refinance releases money tied up in owned assets, allowing you to pay down debt.
- You require fast access to capital – refinance agreements can often be setup and completed within just a few days.
- You are happy selling your assets and hiring them back – this comes with risk of loss in the event you default on your payments.
- The amount you need to raise can be raised by the assets in question – the value of the asset creates your finance ceiling in this case.
Refinance may not be right for your business if:
- Your assets have existing debt on them
- Your assets are expected to depreciate heavily over the term – this would have the knock-on effect of a low offer from the buyer.
- You need to borrow a larger amount of money than your assets are worth. In this case, refinance will only raise part of what you need.
Speak to our team
It can be tough picking between finance facilities, so we’ll shed light on the options available to you.
Call us now on 01234 240155 for a friendly chat.
You can usually reclaim all of the VAT on a commercial vehicle, so the full 20%. This applies to any motorised vehicle which you will use in your business, including motorbikes, scooters, vans, cars, trucks, dropsides and everything between.
There are three important things to remember about VAT and commercial vehicles. We’ll take a look at these below.
- The purchase method dictates how VAT is payable
If you purchase a commercial vehicle on a finance lease or operating lease, VAT is payable on rentals. If you purchase a commercial vehicle on a hire purchase agreement or for cash, VAT is payable at point of sale, so up front.
Depending on how you currently pay your VAT, one purchase route may stand out as more convenient for you. However, since in the end it is reclaimable and VAT is always payable on the purchase price, there is no VAT cost benefit between these finance agreements, other than the lower payments that come with a finance lease or operating lease as a result of the finance amount being lower overall.
- How the vehicle is used determines how much VAT can be reclaimed
You can reclaim 100% of the VAT on commercial vehicles that are used exclusively for business purposes and 50% on vehicles that are mixed use. A good example of a 100% use vehicle is a large van, HGV or forklift. A good example of a mixed-use vehicle is a company car or small work van you get around in.
With cars, there is also the ability to reclaim 100% of VAT if it is used as a taxi, for driving instruction, or self-drive hire, otherwise a 50% rate applies, unless you can prove the car is used exclusively for business purposes.
- VAT is only reclaimable if you or your business is VAT registered
We sound like we’re pointing out the obvious here but many a small business owner has forgotten it – to reclaim the VAT on a commercial vehicle, you or your business (whoever is on the paperwork) must be VAT registered.
If you are not, you can’t reclaim the VAT on any purchase. The taxable turnover threshold which determines if a business must be VAT registered is £85,000. For individuals, it stands at £83,000. These rates are fixed to 31 March 2022. If you are above the threshold you need to register for VAT as a matter of course.
VAT payments are usually made monthly or quarterly. Your deadline is usually the date you registered for VAT plus 1 month and 7 days, or 1 month and 7 days from the end of your accounting period. You can claim pre-registration VAT on your first return, so if you are not VAT registered now you can reclaim the VAT on a commercial vehicle if you get yourself VAT registered up to 4 years in the future.
To find out more about how your business can benefit from tax breaks with commercial vehicles, speak with our team. Call us now on 01234 240 155.
If your bank has turned down your application for finance to start a new business, you probably have a lot of questions. Chief of which will be why you were turned down in the first place, followed by what your next steps should be.
Why was I turned down?
The most common reason banks turn down credit applications is because of a low credit score. This could be for a number of reasons. Perhaps because you managed credit poorly in the past or because you have been declared bankrupt before.
A lack of credit history is also a common reason for being turned down. Without previous borrowing experience lenders can’t judge if you are a reliable person. Most banks will turn down an application because of this.
Making too many applications in a short period of time is another a common reason for rejection. Each application for start-up finance leaves a hard check on your credit profile. If there are too many in a short period this shows desperation.
There is also the possibility of being rejected because you have too much credit already, such as that from outstanding loans and credit cards. A significant amount of credit is likely to count against you in your application.
Is your business plan on point?
Last but not least, there is the possibility you just applied with the wrong lender. With a specialist product like start-up finance, you need to approach lenders who understand the needs of new businesses. Your lender should be willing to review your business plan and use this to judge your reliability and capability for success.
Because you are a start-up you will have to prove your idea to any lender you approach, which is why your business plan is so important. Your financial projections need to show you are profitable, or at the very least they need to show growth and potential. This will really help improve your chances of securing start-up finance.
What are the next steps?
Being turned down for start-up finance isn’t the end of the road for you. However, you should probably stop applying with high-street banks.
If you keep applying with these banks you’ll probably keep getting the same result. And as we noted, too many applications in a short period of time is bad news for securing credit in the near future – and especially if you keep being rejected.
So, where does that leave you?
First of all, you need to establish why you were rejected for credit. It could be something as simple as not filling out your application right. Or it could be something you need to work on like a poor credit score or not enough credit history.
In terms of lenders, there are alternatives to banks. Your next step could be alternative lenders who specialise in B2B lending, like us.
We have a wide range of finance products suitable for start-ups, from secured and unsecured finance that’ll put a lump sum in your bank account, to operating leases, finance leases, and hire purchase facilities so you can acquire equipment and vehicles. Call us today to find out more. You can reach us on 01234 240155.
Refurbishment finance is available to businesses looking to upgrade a tired, outdated or poorly designed workplace into a better one. Depending on how much you need, you can borrow unsecured or secured.
Improvement works always cost plenty and oftentimes more so than planned. So, it’s important you properly account for every change you are going to make and add 5%. This will give you a plan with good contingency.
Whether it’s for a change in use or change in décor, most business owners look at refurbishment as an investment. It’s an exciting project to undertake. To help get you started, here’s five ways to finance it.
- Borrowing less than £25,000
If you need to borrow £10,000 to £25,000 first of all we would recommend unsecured finance. This allows you to borrow what you need without fronting collateral, although you the director will need to provide a personal guarantee. This will make you personally liable for the debt in the event your business defaults.
- Borrowing more than £25,000
If you need to borrow more than £25,000, or if your business has a poor credit score, secured finance is the product you need. This is where you provide collateral to secure the finance. This can be anything of high value that will cover the cost of the finance plus fees. It must also hold its value. Real estate is a good example.
- Buying equipment
If you already have funds for building work but require finance to buy equipment (for example, ovens for a kitchen or computers for an office), a hire purchase agreement would work well. With this agreement, your lender will buy the equipment for you and then hire it back to you over a term. This allows you to spread the cost.
- Leasing equipment
If you have no desire to own the equipment you need outright, or if you regularly upgrade equipment, consider a finance lease. This has low monthly payments because the purchase price of the equipment is not being paid off in full by you. It is paid off in part with a balloon protecting the rest. This agreement is suited to flipping assets.
- Start-up finance for refurbishments
If you are a start-up requiring finance to refurbish a building for commercial use, you will need a specialised product called start-up finance. There is increased risk for the lender with start-ups, so the fees are often higher than traditional finance. There are also less lenders to choose from. Our sister company, Blackrock, is one of the best.
Lastly, make sure you compare fees and rates. Lower fees and rates are always better. You can also reduce the cost of borrowing by shortening the term.
Speak to us for advice
We can recommend the right finance for you based on the amount you need to raise for refurbishment works and your credit score. Call us on 01234 240155 to speak with us about finance for your business, we are here to help.