It is commonly acknowledged that facilities based on funding the receivables ledger (factoring and debtor finance), are well suited to funding a start-up businesses. An aspect which is less well known, are other areas where receivables funding can be very useful.
1. Buying a business
When buying an existing business it can be very difficult to obtain finance to meet the purchase price, unless the purchaser has ample equity. Some businesses will have a lot of fixed assets which the buyer can use as security. The service type businesses typically have hardly any fixed assets, but with bulk of assets being receivables. In either of these scenarios, Lock Finance has assisted clients in raising finance by leveraging against the receivables ledger. In some instances the necessary funding can be raised in conjunction with a main stream bank e.g. bank provides security backed lending, and balance of purchase price is provided using a receivables based working capital facility. Even if the historical receivables are not included in the purchase price, Lock Finance can provide temporary funding based on expected invoicing, which temporary facility can then be repaid from a factoring or debtor finance facility once the first one or two months invoicing kicks in.
2. Insufficient banking facilities
At times, a bank may not be in a position to provide sufficient facilities to meet a client’s needs. This usually comes to light when there are regular unauthorised excesses, adding additional pressure to the business owner. The most common reasons for the bank not being in a position to provide further assistance can be varied:
• client not being in a position to provide additional security
• business financial standing – insufficient profitability or low balance sheet equity
• perceived as a high risk industry i.e. fashion or printing
In all of these cases, Lock Finance is potentially able to assist by providing a facility against receivables ledger.
3. Rapid growth experienced
Much has been written about a business that experiences rapid growth, and how that growth is funded. Banks usually get nervous with rapid growth, and the phrase “overtrading” is bandied about. Rapid growth is viewed with great excitement by Lock Finance. The beauty of a receivables based facility, is that the more rapid the growth (and associated invoicing), the greater the facility we are able to provide to facilitate our client’s growth, and therefore the more profitable our client’s business.
If any of these situations sound familiar, let us know and we would be happy to have a confidential discussion.
Sean Hilton Lending Manager
DDI. 09 375 8505
Mob. 027 533 1355
Tower Centre
45 Queen Street, Auckland 1010