Here at Burton Beavan, we’ve helped hundreds of businesses grow, sometimes organically and other times through unlocking commercial finance for them.

Growth is always difficult for any company. The main challenges are:

• your fixed costs go up meaning you’ve got to make more sales before turning a profit,
• it’s difficult finding the right staff to lead growth,
• as your company gets larger, the culture changes and the bonds between you as a director and your staff become weaker, and
• while profits can be bigger, losses can escalate too.

Is it worth it? Some business owners say that the bigger their business grew, the less they enjoyed it. Other says it’s the best thing that ever happened to them and finally they could see an exit in sight.

For you, time will tell whether it was the right move for you.

In this article, Burton Beavan looks at attracting commercial finance for your business to grow and why it’s always better to do it in partnership with your accountant.

Who is in the commercial finance market these days?

You might have heard of “fintech” companies. They’re financial technology companies who use big data to make lending decisions. The consumer finance world is full of such companies – think Wonga, Satsuma Loans, CashLady, and more.

In the past few years, to plug the gap in funding caused by banks being too frightened to lend to all but the most bulletproof businesses, “fintech” is now big in commercial finance. Think Funding Circle, Fleximise, eZbob, and more.

Just as with consumer fintech, commercial finance is now dominated by algorithms. For companies, the algorithm will consider things like cash movements in and out, VAT bills, credit history, filings at Companies House, cash at hand and in the bank, and so on.

These algorithms produce three results based upon a calculation of how likely the fintech company system believes it is that you can pay the money back – “yes”, “yes but maybe no”, and “no.”

You can still lend from high street banks. They claim they’re lending more than ever before. In our experience though, the hurdles you have to jump over are much higher than with fintech companies and the collateral you have to secure the loan against puts many off the idea.

Who are commercial finance companies lending money to?

Every commercial finance provider has their own underwriting criteria unique to them. For each one, there’ll be some types of company they like to lend to and others they don’t.

A limited number of commercial finance firms work with companies as young as six months old. You’ll need to produce bank accounts, VAT records, and more as part of the application process. They will generally lend you up to £200,000 but the actual amount is usually restricted to twice your company’s monthly turnover.

If you’re looking for much large sums like £500,000, nearly all lenders will want to see at least two years’ trading history as a minimum.

Am I at risk with these forms of commercial finance?

Without exception, every commercial finance company making loans to businesses will want personal or director guarantees from you (and any other shareholders in your business).

What that means is that if your company can’t pay the loan off, they’ll come to you for the money. If there is more than one shareholder/director, everyone whose name is on the commercial finance agreement will be jointly and severely liable. So, if the other directors flee the country and can’t be found if your company defaults on the loan, they’ll come to you for their share of the repayments as well as your own.

Please be in no doubt that they will not pursue you for the money if you can’t make the repayments.

What are commercial finance interest rates like at the moment?

It depends on who you go to but anywhere between 1% and 8% per month is normal. Converting that into numbers on a 12-month loan looks like –

• £100,000 at 1.5% per month would mean you pay back £110,016 (£9,168 a month)
• £100,000 at 8% per month would mean you pay back £152,000 (£12,666 a month).

The interest rate you’ll be offered will depend on their view of your business based upon their method of risk profiling.

How would Burton Beavan help me access the best-priced and most-suitable commercial finance loan?

Nature abhors a vacuum and commercial finance underwriters abhor a lack of information. In these circumstances, you’re more likely to get a “yes but maybe no” or “no” from the funder.

Accountants like Burton Beavan can help you save money on interest charges and increase your chances of getting a loan. How?

• Up-to-date management accounts show a business owner who knows what is going on in his or her company
• Management accounts help underwriters see how repayments of your loan and increased fixed costs fit into your financial and sales planning
• Presentation of bank account statements, HRMC statements and correspondence, and VAT return in an ordered and quick fashion give an underwriter confidence in you.

Please check out our Management Accounting for Growth page on our website.

Thought about invoice factoring?

Have you heard of invoice factoring? It’s a form of finance based around the invoices you’ve issued.

This is how it works. You sell £1,000 + VAT worth of widgets to the Widget Retail Emporium Ltd. Widget Retail Emporium Ltd get your widgets and say they’re happy with your widgets. You then raise the invoice and send it to your factorer. You factorer will then pay you (normally next day) £800 + VAT.

30 days pass and Widget Retail Emporium pay your factorer the full amount. The day after funds have cleared, your factorer than pays you the remaining £200 + VAT minus their fees (normally about as expensive as a credit card transaction).

That’s invoice factoring. You can only factor invoices to other businesses and your factorer will give each customer a credit limit. You can also only factor invoices when the order is complete and the customer has indicated satisfaction. Specialist factoring services allow payment by milestone.

There is a simple invoice factoring service linked to your Xero account called duecourse.com. Contact us if you want to find out more.

Commercial finance and you

If you’re looking for commercial finance, the first person you should call is your accountant here at Burton Beavan.

Let’s meet up (your place or ours) and we’ll go through everything we need to so we make sure that your growth plans stack up and you borrow no more than you need.

Call us on 01606 333 900 or email us at hello@burtonbeavan.co.uk.