Funding Circle / Business Finance
Discussion
I own a small web development agency and am looking to purchase a number of hosting clients from design agency. I know the owner well and have have worked for on various projects for them for many years.
I have a quote from Funding Circle for £25k over 36 months at ~17% ARP, with a 'completion fee' added to the loan of £1,500.
This seems quite expensive to me, but could still work as the clients from the agency I'm looking to purchase would fairly easily cover the cost of the repayments - assuming most of them don't go elsewhere, and I can negotiate a reasonable price with the seller.
Are there any better places to get finance? I bank with HSBC and I suspect based on past experiences they will want lots of documentation, meetings and then decline.
My business is currently 12 years old and making reasonable turnover/profit and has no other outstanding finance other than a small overdraft.
I have a quote from Funding Circle for £25k over 36 months at ~17% ARP, with a 'completion fee' added to the loan of £1,500.
This seems quite expensive to me, but could still work as the clients from the agency I'm looking to purchase would fairly easily cover the cost of the repayments - assuming most of them don't go elsewhere, and I can negotiate a reasonable price with the seller.
Are there any better places to get finance? I bank with HSBC and I suspect based on past experiences they will want lots of documentation, meetings and then decline.
My business is currently 12 years old and making reasonable turnover/profit and has no other outstanding finance other than a small overdraft.
Edited by wheelerc on Thursday 31st January 10:30
I think in the current climate you'll probably need a Personal Guarantee for anything much above £5k.
I think its worth approaching the bank anyway!?
Have you tried increasing the overdraft facility? It depends how you want it to work from an accountancy / cashflow point of view, but you would probably find you could get a £5 / 10k overdraft without too much hassle if your turnover is there, business age is ok for them and trading history etc is good. This would then reduce the amount of loan / funding required.
The rate you have mentioned isn't awful I've seen others paying more for other routes.
I think its worth approaching the bank anyway!?
Have you tried increasing the overdraft facility? It depends how you want it to work from an accountancy / cashflow point of view, but you would probably find you could get a £5 / 10k overdraft without too much hassle if your turnover is there, business age is ok for them and trading history etc is good. This would then reduce the amount of loan / funding required.
The rate you have mentioned isn't awful I've seen others paying more for other routes.
Thanks for the replies.
I haven't approached my business bank (HSBC) yet, although I went to pay a cheque in this morning on the way to the office, and the branch didn't open until 9.30! I'll see if I can get an appointment for tomorrow.
FC do want a personal guarantee which isn't a problem. I do also own my house (mortgaged) and may be willing to secure the funds against that if the rate is much better. I have a couple of years left on my 5 year fixed mortgage - but now I think about it the penalty fee for re-mortgaging early may be worth taking to get a much cheaper rate. I already have a small personal loan, and don't really want to take another (and I'm not sure I'd be able to get one for £25k) - I would rather keep the business finance linked to the business.
I already have a £10k business overdraft (typically around 50% used) with HSBC and they didn't seem keen to extend it last time I asked, but that was a while ago and the business has grown since.
I haven't approached my business bank (HSBC) yet, although I went to pay a cheque in this morning on the way to the office, and the branch didn't open until 9.30! I'll see if I can get an appointment for tomorrow.
FC do want a personal guarantee which isn't a problem. I do also own my house (mortgaged) and may be willing to secure the funds against that if the rate is much better. I have a couple of years left on my 5 year fixed mortgage - but now I think about it the penalty fee for re-mortgaging early may be worth taking to get a much cheaper rate. I already have a small personal loan, and don't really want to take another (and I'm not sure I'd be able to get one for £25k) - I would rather keep the business finance linked to the business.
I already have a £10k business overdraft (typically around 50% used) with HSBC and they didn't seem keen to extend it last time I asked, but that was a while ago and the business has grown since.
If you've got a £10k OD I think you've done well they were hard to get for a while but the banks seem to have softened slightly in the last couple of years.
Have you considered changing banks? Might be worth asking around, they tend to love new business accounts of most sizes, but they'll probably want an outline business plan etc and some soft accounts / year on year forecasts as well (at the least) which isn't the end of the world if it gets you to where you are going.
I have no experience of the HSBC however I see someone else is posting mentioning HSBC are withdrawing their banking facilities & closing their account which is pretty awful, assuming the op is giving full disclosure of the circumstances the reason seems pretty daft!
Have you considered changing banks? Might be worth asking around, they tend to love new business accounts of most sizes, but they'll probably want an outline business plan etc and some soft accounts / year on year forecasts as well (at the least) which isn't the end of the world if it gets you to where you are going.
I have no experience of the HSBC however I see someone else is posting mentioning HSBC are withdrawing their banking facilities & closing their account which is pretty awful, assuming the op is giving full disclosure of the circumstances the reason seems pretty daft!
Well, I've just tried to apply for the loan online via HSBC Business Banking (they advertise they they will give an indication of acceptance before the full application - so I thought it would be worth a go). Their online banking said they didn't have enough info and to call them (before I'd even specified the loan amount).
I called and they said it would need to be looked at by their commercial team, and to expect a call back within 4 days!
I called and they said it would need to be looked at by their commercial team, and to expect a call back within 4 days!
I wouldn't be too disheartened by that, I think the initial acceptance thing is just a hook. Used more for domestic instances with soft searching for credit - but for business all situations are too complex and KYC etc etc would dictate that it always goes through an underwriter at any level for any sort of accurate response.
Four days is a very slow turnaround time, I would get another horse in the race!
If you aren't already I find this a good place to be a member off for a bit more focussed help -
https://www.ukbusinessforums.co.uk/
Four days is a very slow turnaround time, I would get another horse in the race!
If you aren't already I find this a good place to be a member off for a bit more focussed help -
https://www.ukbusinessforums.co.uk/
I have Funding Circle and a couple of other similar/working capital style lenders on my funding panel and they generally all need a Director's Guarantee, regardless of the size of the business/credit covenant, thats just their policy. From an asset finance perspective, unsecured funding is still easily available, irrespective of the current economic climate, but by the sounds of things, what you are buying is very much 100% services, so that angle wont really work. Unless of course you are looking to buy something else that could be financed, leaving the cash for this purchase instead. The only other thing i would have suggested is to perhaps re-finance any unencumbered assets you already have to raise the cash that way instead, being a web developer however, i cant imagine you have many CNC machines and/or other plant floating around 
Happy to see what Funding Circle and/or any of the other lenders offer via the broker portal if you like (is sometimes cheaper than direct), just drop me an email if its of interest
Happy to see what Funding Circle and/or any of the other lenders offer via the broker portal if you like (is sometimes cheaper than direct), just drop me an email if its of interest
I also looked at funding circle, rates were far too high and they wanted a Directors loan. I would expect much lower rates as they insisted on a Directors loan which takes out most of the risk for them.
Don't underestimate a Directors loan - not to be taken lightly, in my option to be avoided if possible.
Don't underestimate a Directors loan - not to be taken lightly, in my option to be avoided if possible.
I haven't done this in my current business, but the previous one I had, we purchased some clients.
Sadly all of the clients left us within a year. This wasn't from us making mistakes, we tried very hard to go the extra mile for every single one of them to show they were well looked after.
The issue was that they were with the previous company because they liked the serivce, people etc and at the end of the day we were different.
Be careful taking on debt to do this. What can you do to protect and guarantee keeping their custom?
Sadly all of the clients left us within a year. This wasn't from us making mistakes, we tried very hard to go the extra mile for every single one of them to show they were well looked after.
The issue was that they were with the previous company because they liked the serivce, people etc and at the end of the day we were different.
Be careful taking on debt to do this. What can you do to protect and guarantee keeping their custom?
It would be worth going to your existing bank with cash flow forecasts, budgets etc and see what they have to say.
If you are guaranteeing the loan against property the APR should be between 6 and 8%.
However, if you are not buying a tangible asset or a rock solid investment, think long and hard before you put your house on the line.
If you are guaranteeing the loan against property the APR should be between 6 and 8%.
However, if you are not buying a tangible asset or a rock solid investment, think long and hard before you put your house on the line.
For future reference, yes, most lenders of business loans will look for a PG but a new one has just come to the market lending up to £22,000 (odd number I know) without the requirement for a PG. Rates aer based on credit score but are circa 12-15% (expensive, I know, but they will say it's because they don't ask for a PG) and a 5% Arrangement fee.
I am a commercial finance broker by trade so if this is something anyone requires in the future, drop me a line.
I am a commercial finance broker by trade so if this is something anyone requires in the future, drop me a line.
If I was funding this through finance I would certainly want to know those clients were locked into long term contracts.
Otherwise, speak to the web design agency you are buying from about a buy-out based on revenue type deal. So over the next X months, you'll pay them a percentage of the revenue those clients bring in. It means if any of those clients leave, you're not on the hook paying for them. The design agency might want a slightly higher price as it means it will take longer for them to be paid in full, but you're minimising your risk and saving yourself the cost of finance, so you can afford a higher price.
Otherwise, speak to the web design agency you are buying from about a buy-out based on revenue type deal. So over the next X months, you'll pay them a percentage of the revenue those clients bring in. It means if any of those clients leave, you're not on the hook paying for them. The design agency might want a slightly higher price as it means it will take longer for them to be paid in full, but you're minimising your risk and saving yourself the cost of finance, so you can afford a higher price.
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