Generate cash flow from within your business

Do you need to raise capital for your business?  If so, asset finance should be part of your strategy.

Raising finance for your business to facilitate growth or improve working capital has never been an easy proposition.  But, with tighter lending policies and a changing legal environment, the traditional routes of Bank loan or overdraft have become more difficult to source, unless Owners/Directors are prepared to offer their family home as security.

Stepping in to fill part of the void are the asset finance providers, who concentrate on the value of the fixed assets in the business, rather than how much equity you have in your family home.

Industries that use high value capital items of plant and machinery, such as printing, manufacturing, engineering and distribution may have a ready made solution. They will often have assets on their balance sheets which are likely to have good market value long after the initial finance to purchase the equipment has finished.

This value can be realised by completing a sale and leaseback or sale and HP back agreement with a Finance House.  In return for selling the equipment to the Finance House at current market value (but still retaining the use of the equipment) the Finance House will provide a loan to the business for approximately 90% of the asset value.  The loan can then be re-paid over a period ranging from 1 – 5 years. At the end of the loan the business regains title to the asset.

There are 103 members of the Finance and Leasing Association, so competition between Finance Houses is fierce.  This has resulted in sale and leaseback or sale and HP back facilities being applied to assets such as computer systems, telephone systems and air conditioning systems. 

The main beneficiaries of this approach are the service sector companies, who need offices rather than large pieces of plant to operate their businesses.  As a general rule, these types of asset must be no more than 6 months old when the re-finance takes place.  Loans can generally be obtained for up to 90% of the initial purchase price.

Asset finance loans can be raised from £5,000 upwards, so if you are in the position of having some unencumbered assets on your balance sheet, this could be a good way to generate some cash flow.

To give an example of asset re-financing, a recent case saw a group of individuals purchase a scaffolding hire business.  The new shareholders and directors wanted to pay off the exiting shareholder, who was due to stay in the business on an ‘earn-out’ basis for two years. 

The largest asset on the balance sheet was the stock of scaffolding.  By completing a sale and leaseback arrangement on the scaffolding, a Finance House provided a five year loan to the business, thus enabling the new owners to pay off the exiting shareholder.

As a registered finance broker, Spiral can offer advice and guidance on asset finance and a range of other commercial finance options.  If you would like to discuss your requirements with a member of our team, contact us.