Discussion
Hi
Got the opportunity for expansion which is much needed. A lot of cash is tied up elsewhere and with money relatively cheap to borrow, I’m looking at loans. First time the business has had to borrow.
Bank has offered 5.5% on £95k over 10 years. I don’t know a lot about it... does that sound like a good deal?
It is unsecured loan however the business normally has £100k minimum in the account as a contingency fund. Turnover £3.5m.
Thanks
Got the opportunity for expansion which is much needed. A lot of cash is tied up elsewhere and with money relatively cheap to borrow, I’m looking at loans. First time the business has had to borrow.
Bank has offered 5.5% on £95k over 10 years. I don’t know a lot about it... does that sound like a good deal?
It is unsecured loan however the business normally has £100k minimum in the account as a contingency fund. Turnover £3.5m.
Thanks
Fixed rate? Variable rate? When you say unsecured, do you mean wholly unsecured, or just not on you personally?
Would / could you secure it for a lower rate?
Doesn’t sound like a lot to borrow vs the size of business... is it enough to do what you want? If you only need £100k does it even need to be borrowed?
Would / could you secure it for a lower rate?
Doesn’t sound like a lot to borrow vs the size of business... is it enough to do what you want? If you only need £100k does it even need to be borrowed?
I'd suggest you don't even have to borrow it.
What does your aged debtors ledger look like. Pull that in with some targetted measures.
Choose a few meaty customers and improve their payments with early settlement discounts. You could see a very healthy uplift in your cashflow that will fit the bill nicely.
Do you really need the £100k contingency headroom. How often do you use it all ? May be better and more cost effective to just get an overdraft facility to be used as and when necessary.
Cheers,
Tony
What does your aged debtors ledger look like. Pull that in with some targetted measures.
Choose a few meaty customers and improve their payments with early settlement discounts. You could see a very healthy uplift in your cashflow that will fit the bill nicely.
Do you really need the £100k contingency headroom. How often do you use it all ? May be better and more cost effective to just get an overdraft facility to be used as and when necessary.
Cheers,
Tony
JPJPJP said:
Fixed rate? Variable rate? When you say unsecured, do you mean wholly unsecured, or just not on you personally?
Would / could you secure it for a lower rate?
Doesn’t sound like a lot to borrow vs the size of business... is it enough to do what you want? If you only need £100k does it even need to be borrowed?
Fixed rate. Unsecured in that they aren’t using any of our land etc as security.Would / could you secure it for a lower rate?
Doesn’t sound like a lot to borrow vs the size of business... is it enough to do what you want? If you only need £100k does it even need to be borrowed?
I’m waiting for some other quotes to come in so not sure if it’s a good rate or not.
Tony427 said:
I'd suggest you don't even have to borrow it.
What does your aged debtors ledger look like. Pull that in with some targetted measures.
Choose a few meaty customers and improve their payments with early settlement discounts. You could see a very healthy uplift in your cashflow that will fit the bill nicely.
Do you really need the £100k contingency headroom. How often do you use it all ? May be better and more cost effective to just get an overdraft facility to be used as and when necessary.
Cheers,
Tony
Currently £570k outstanding and £210k overdue. I have started today to sort this out. What does your aged debtors ledger look like. Pull that in with some targetted measures.
Choose a few meaty customers and improve their payments with early settlement discounts. You could see a very healthy uplift in your cashflow that will fit the bill nicely.
Do you really need the £100k contingency headroom. How often do you use it all ? May be better and more cost effective to just get an overdraft facility to be used as and when necessary.
Cheers,
Tony
We run on quite tight margins so might not be able to offer discounts on early payers. Have thought about punishing late payments. Also increasing margin on slow payers.
I would have thought an overdraft could be more expensive especially with the new changes? I do dip into the contingency now and again. I am expecting cash flow to take more of a hammering over the summer because our customers will experience the same so do want to keep it there just in case!
Cheers for your input guys
I can’t work out why you need £100k over years, surely it’s just temp cash flow and an overdraft is the best option?
We took on a large client with 60 day terms that’s unheard of in our business and we needed to offset it, we did it with a £100k loan we will repay once the project is paid up. We used msif who are a gateway to gov and euro cash. Arrangement fee was 3% though !! No security.
We took on a large client with 60 day terms that’s unheard of in our business and we needed to offset it, we did it with a £100k loan we will repay once the project is paid up. We used msif who are a gateway to gov and euro cash. Arrangement fee was 3% though !! No security.
If you have £210k overdue then you do not need to borrow £100k
You just need to get better at collecting the money that people owe you by the date they already agreed to pay you on
Look at it this way: you have £95k in the bank now. If you had £305k in the bank (i.e. everyone had paid on time), would you still be thinking about borrowing £100k?
If you were talking about needing £1m, or even £500k, then maybe. But to borrow less than you are owed from existing customers that you expect to pay... it makes no sense to me.
You just need to get better at collecting the money that people owe you by the date they already agreed to pay you on
Look at it this way: you have £95k in the bank now. If you had £305k in the bank (i.e. everyone had paid on time), would you still be thinking about borrowing £100k?
If you were talking about needing £1m, or even £500k, then maybe. But to borrow less than you are owed from existing customers that you expect to pay... it makes no sense to me.
We are having a big push on collecting cash, however the industry we sell to are asset rich and cash poor.
Slow payments are an industry wide thing, but we are gradually weeding out the slow payers. As we get into the summer, I see this problem getting worse.
I was under the impression that overdraft rates cost a lot more than borrowing?
Slow payments are an industry wide thing, but we are gradually weeding out the slow payers. As we get into the summer, I see this problem getting worse.
I was under the impression that overdraft rates cost a lot more than borrowing?
Andy,
I run a commercial finance brokerage and I can offer the following comments:
- £95k unsecured (assuming they want a PG though) at 5.5% from your bank is a stunning rate on many levels. Firstly, banks rarely give that much unsecured (with just a PG) so the fact they've offered it is a vote of confidence in your business. You haven't mentioned if there's an arrangement fee but even if it's 1 or 2%, this is still a great rate. Secondly, after today's Base rate cut this rate may now even be lower because my guess is they priced it as a spread over Base rate. Thirdly, no private lender that I know of will offer unsecured over 10 years plus it will amortise so you can pay of early without significant penalty so this helps your cashflow. Therefore in answer to your opening question, I'm thinking this is a great deal.
- If they want security on your house - and it wouldn't surprise me if they did for £95k - then the deal is more middle-of-the-road
- Think about what you want the money for. The term you borrow over should match the use of funds e.g. buy a vehicle with an expected life of 5 years and pay for it with 5 year asset finance. I would raise a question here if a 10 year loan is really what you want. Might an overdraft be more suitable if your need here is driven more by variability of cashflow? Banks are still the best place to get overdrafts but they are very slow to offer them due to the onerous capital adequacy requirements in places on them (i.e. it's hard for them to make a return based on the capital they'd have to set aside to cover your limit). There are private lenders that will offer overdraft-type facilities now, some take a charge on the Debtor book (I'm not sure if your bank already finances your invoices and already has a charge here), some will do it with a PG but they are all going to have a headline rate that is more expensive than your bank. That said, they'll all probably work more quickly and efficiently than your bank. And it depends on how much you will use it. If you're just dipping in and out for a few weeks at a time here and there then the overall costs should be less than the ongoing cost of servicing a 10 year loan. This is what you need to think about.
- Last comment is on your industry sector (which I don't know). We've had a few emails this week from lenders saying they are reviewing their appetite for sectors like tourism, travel, hospitality etc. that are likely to be disproportionately hit by this Coronavirus. If you are in one of these sectors then I would say that finance options may begin to be affected and you might want to take the 10 year loan if it's on the table. We don't know how this is going to play out and I don't mean to cause undue concern but these early signs from some lenders should be noted.
I hope this helps but do let me know if I can clarify anything else.
I run a commercial finance brokerage and I can offer the following comments:
- £95k unsecured (assuming they want a PG though) at 5.5% from your bank is a stunning rate on many levels. Firstly, banks rarely give that much unsecured (with just a PG) so the fact they've offered it is a vote of confidence in your business. You haven't mentioned if there's an arrangement fee but even if it's 1 or 2%, this is still a great rate. Secondly, after today's Base rate cut this rate may now even be lower because my guess is they priced it as a spread over Base rate. Thirdly, no private lender that I know of will offer unsecured over 10 years plus it will amortise so you can pay of early without significant penalty so this helps your cashflow. Therefore in answer to your opening question, I'm thinking this is a great deal.
- If they want security on your house - and it wouldn't surprise me if they did for £95k - then the deal is more middle-of-the-road
- Think about what you want the money for. The term you borrow over should match the use of funds e.g. buy a vehicle with an expected life of 5 years and pay for it with 5 year asset finance. I would raise a question here if a 10 year loan is really what you want. Might an overdraft be more suitable if your need here is driven more by variability of cashflow? Banks are still the best place to get overdrafts but they are very slow to offer them due to the onerous capital adequacy requirements in places on them (i.e. it's hard for them to make a return based on the capital they'd have to set aside to cover your limit). There are private lenders that will offer overdraft-type facilities now, some take a charge on the Debtor book (I'm not sure if your bank already finances your invoices and already has a charge here), some will do it with a PG but they are all going to have a headline rate that is more expensive than your bank. That said, they'll all probably work more quickly and efficiently than your bank. And it depends on how much you will use it. If you're just dipping in and out for a few weeks at a time here and there then the overall costs should be less than the ongoing cost of servicing a 10 year loan. This is what you need to think about.
- Last comment is on your industry sector (which I don't know). We've had a few emails this week from lenders saying they are reviewing their appetite for sectors like tourism, travel, hospitality etc. that are likely to be disproportionately hit by this Coronavirus. If you are in one of these sectors then I would say that finance options may begin to be affected and you might want to take the 10 year loan if it's on the table. We don't know how this is going to play out and I don't mean to cause undue concern but these early signs from some lenders should be noted.
I hope this helps but do let me know if I can clarify anything else.
seaninog said:
- £95k unsecured (assuming they want a PG though) at 5.5% from your bank is a stunning rate on many levels.
I wondered about that as one of our directors was approached (no doubt after blabbing in his local about how much we have in the bank) by a small developer for £300K secured on the plot and he offered 10% pa. He said the bank was 8% plus fees. Other directors all said 'no'.
AndyC_123 said:
JPJPJP said:
Fixed rate? Variable rate? When you say unsecured, do you mean wholly unsecured, or just not on you personally?
Would / could you secure it for a lower rate?
Doesn’t sound like a lot to borrow vs the size of business... is it enough to do what you want? If you only need £100k does it even need to be borrowed?
Fixed rate. Unsecured in that they aren’t using any of our land etc as security.Would / could you secure it for a lower rate?
Doesn’t sound like a lot to borrow vs the size of business... is it enough to do what you want? If you only need £100k does it even need to be borrowed?
I’m waiting for some other quotes to come in so not sure if it’s a good rate or not.
Only you know your business. Clearly your conservative cash buffer has served you well.
I take a counter view to many here. If you have to “do better” to get cash in to replace the loan for a new venture, take the loan. You can’t spread yourself too thin. If you do it the loan-free way, you immediately change the risk profile of your business, and not in a good way
5.5% on £100k is no more than £5k pa in interest. You could easily spend that and more in chasing faster payments, replacing customers you p
s off with tighter credit control, etc. And that’s before the current Covid 19 issue and uncertainty.I’d just double check that the loan isn’t callable on a whim if the lender gets cold feet about the economy, and that the rate is fixed or at least rightly constrained.
It a good point about chasing too hard for money, we tried doing that and ended up annoying some customers, especially the smaller ones where the person paying the bill placed the orders, it cost us a few regular customers and even though they were not great payers they always did eventually pay. once they go somewhere else it takes a lot to get them back.
We have one small supplier at the moment that chases every day after the due date and we are about to stop using him just because of the hassle he is giving our accounts.
The loan you have been offered sounds great and if there are no PG's then snap their hand off.
We have one small supplier at the moment that chases every day after the due date and we are about to stop using him just because of the hassle he is giving our accounts.
The loan you have been offered sounds great and if there are no PG's then snap their hand off.
classicaholic said:
It a good point about chasing too hard for money, we tried doing that and ended up annoying some customers, especially the smaller ones where the person paying the bill placed the orders, it cost us a few regular customers and even though they were not great payers they always did eventually pay. once they go somewhere else it takes a lot to get them back.
We have one small supplier at the moment that chases every day after the due date and we are about to stop using him just because of the hassle he is giving our accounts.
The loan you have been offered sounds great and if there are no PG's then snap their hand off.
So hang on, you're moaning that you've lost customers because you've moaned at them for not paying by the due date, and yet you're doing the same thing to *your* supplier and being annoyed because they are chasing you?We have one small supplier at the moment that chases every day after the due date and we are about to stop using him just because of the hassle he is giving our accounts.
The loan you have been offered sounds great and if there are no PG's then snap their hand off.
Pay on time. It's the right thing to do!
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