You survived last year but what about the collateral damage?

Business Insights

Steve Noble, Reward Finance Group’s Managing Director – North West, outlines ways to get the business back on track and meet your financial obligations.

We’ve said a thankful goodbye to 2020 and although this year has not got off to a good start, I believe the vast majority of us are looking forward to the next 12 months with renewed optimism, now the vaccination programme is well underway.

But sadly, many SMEs have had to endure significant collateral damage, not just in terms of the impact on sales and turnover, but also the accrued debt which has been ‘parked’ until things improve.

Unfortunately, they cannot be ignored any more. Now is the time to lift your head and look at the unavoidable commitments that are coming towards you in Q1 and Q2. Do you have key bills and possible arrears that need to start being paid, such as deferred HMRC bills or Government loans? Are there any key business purchases you put off last year, such as plant, machinery, and vehicles whose purchase is now a necessity?

On a more positive note, are there key contracts coming on stream, or are you tendering for potential new business?

Whatever the scenario you need to ask yourself if you have enough money, or available facilities, to meet these commitments and other potential opportunities.

If the answer is ‘no’, or you have some doubt about stretching yourself financially, then don’t agonise in silence, get stressed out or, even worse, ‘put your head in the sand’ thinking it will sort itself out.

The first thing you need to think about is the quantum you might need to operate and successfully grow the business. Once you have this figure you can start thinking about the funding options.

You could begin by identifying the assets within the business and looking at the balance sheet. Assets are, as the name suggests, just that – the plus elements of your operation which have a value. They typically fall into differing categories – debtors who owe you money for goods or services you have sold to them; the stock you hold; the plant and machinery you need to make and/or deliver your products, and your premises if you own them.

Ask yourself whether you are getting the maximum from these assets, as you can generally raise funding against each one of them, or sometimes against them all in a single facility. Furthermore, the funding amount will usually be more than a traditional bank overdraft would offer.

When it comes to debtors, generally the more straightforward your business the more you can usually raise. Realising funds against property will depend on whether you already have borrowings against it. If you do, there is still a possibility that you might be able to raise extra from a different source.

There may also be other assets outside the business, such as your home or other investment properties, which can also be used as leverage to raise finance for use in your business.

A few lenders like ourselves have the flexibility to take the basket of assets in a business’ balance sheet, leverage against them and fully fund against each one using a single legal agreement.

You also need to decide on the duration of the facility and how flexible it needs to be. It could be for a temporary cashflow requirement covering a few months. Alternatively, it might be for a broader business expansion that needs fuel for the growth over the next 12 months or more to help reach the next level before perhaps levelling off again. Through our experience SMEs typically borrow between £50k and £3m for between two months to two years.

Whatever your funding requirements, be sure to always seek advice, help and guidance. Never assume that because you have had poor experiences with high street banks, that all lenders operate in the same way.

Quite the contrary. You only need to look at the growth in other lending products and markets over the last 12 to 15 years, as companies move away from traditional banks. That’s because people want more choice and greater flexibility.

They also want to meet and talk to people who will listen to their story and try to find solutions, rather than being dictated to by the proverbial computer that has a nasty habit of saying ‘no’. Listening, talking, and observing is much more powerful than simple words on a paper; and meeting with business owners helps convey the story, and in turn prompts questions, so much better than ticking regimented boxes.

For further information and to discuss your funding requirements give Steve Noble at Reward Finance Group a call on 07802 297 929.