When taking out a bridging loan you will be required to provide details of your exit strategy, the method by which you will pay back the loan.
Bridging loans are an extremely valuable form of short-term finance that can help businesses to quickly acquire money to cover an expense before credit becomes available to them.
Just some of the reasons that businesses use bridging loans include funding unexpected expenses, paying urgent debts, and investing in time-sensitive business opportunities.
Before rushing in and requesting a bridging loan though it’s very important that you create a plan for paying back the money. This is called your exit strategy.
The price of a poor exit strategy
When you take out a bridging loan you will agree a date by which the debt will be repaid. If you cannot repay the amount by this time you will need to consult with your loan provider about what happens next.
In some instances, it may be possible to extend the loan, but beware that this is not always the case. A late repayment could end up costing you a considerable amount in renewal costs or late payment penalties, as well as having a negative effect on your credit rating, so it’s wise to ensure that you have a reliable exit strategy in place before going ahead.
Typical exit strategies
Your exit strategy will depend entirely on your business’ unique circumstances and the reason that you required the bridging loan.
A few examples of typical exit strategies include:
- Selling a property or land
- Selling debt to a collection agency
- Selling shares or assets
For further information about bridging loans,or help and advice with creating a sound exit strategy, get in touch with our team of experts here at Richmond Asset Finance by calling us on 0113 288 3277.
Advancements in technology mean that we could soon see smart farming dominating the agricultural industry.
Farmers are likely to become increasingly reliant on farm machinery finance to help them gain the new machinery and equipment they require to keep pace with technology and stay competitive.
Just a handful of the high-tech agricultural equipment set to automate farmers’ jobs include:
Sensors– Sensors can be used on the land or in machinery and equipment to gather and share information and data. Sensors can be placed in fields to gather data about the condition of the soil, or in machinery to track information about yield or condition of machinery. This information can then be accessed by the farmer from anywhere, allowing them to make the relevant changes necessary to optimise crop growth.
Drones– Drones are already being used by farmers in the US for a variety of tasks including monitoring crops and spraying chemicals.
Driverless tractors– Automated, driverless tractors can operate all day and all night, to get the job done quicker and more efficiently. Future farmers may also be able to link their tractors to sensors and drones, giving them access useful information about the field that they’re working.
Robot pickers– Picking crops is a labour-intensive task which can be completed quicker and more efficiently with the help of robots that work 24/7. Using robot pickers would also significantly reduce labour expenses.
To find avoid getting left behind, find out more about our farm machinery finance options by giving our team a call on 0113 288 3277.
Machines are critical to growth in the manufacturing sector but they are often expensive and can eat into business profits without some form of financial help.
Traditionally business owners turn to the bank to provide straightforward business loans to help if there is insufficient cash in the business to purchase machines. Even if there is enough cash to buy a machine, a loan can be a more sensible way to buy equipment particularly if there is risk attached in making large investments as there often is in business. However, business loans from banks also come at a cost and interest rates can be high.
Having multiple loans can also leave a business vulnerable in a downturn and restrict any cash flow available to grow the business. Machine finance is growing in popularity because it unlocks funding when you need it.
So if your business requires a new machine that will cut down the amount of manual labour required to get jobs done such as a CNC machine, machine finance can help you acquire that machinery at a minimum upfront cost.
This means you get the benefit of improved efficiency and profitability while spreading the cost. It can also be tax efficient now that the government has increased the annual investment allowance. So it comes as no surprise that the machine finance sector has grown 9% year on year.
As we start the new year many of us will have plans to expand our business or perhaps look at new products and services. This may not be possible, however, without the extra costs involved in purchasing new equipment, new software and so on.
This extra cost burden can be off putting but if you take advantage of the Annual Investment Allowance (AIA) did you know that you can offset your investment in equipment and technology against tax?
Better still you can offset 100% of the investment against your taxable business income so not only do you get to improve your business operation and innovate, you can also reduce your tax burden at the same time. The allowance was also recently increased from £200k to £1million.
If you are planning to take advantage of the AIA this year you can use asset finance to spread the cost rather than invest all the cash in your business up front. This multiplies the benefit to your business.
The AIA was originally introduced in 2008 and the recent increase from £200k to £1million is designed to help stimulate investment in business at a time when it will be needed more than ever in the UK.
Your idea of business finance may be a trip to the bank to get a business loan and this is the route most SME business owners will go down. However, there are plenty of alternative sources of finance to explore including some of the following you may not be aware of.
Asset finance is ideal for businesses that require expensive equipment but lack the funds to go and pay for all the equipment needed upfront. Asset finance can come in many forms from vehicle finance to finance on machinery. Asset finance is also flexible and can be arranged in the form of a lease or higher purchase (hp).
Did you know you can use your unpaid invoices to gain finance? You can use those invoices as collateral for loans or you can sell them to an invoice factoring company. This means you can get your hands-on cash in advance without having to wait for invoices to be paid. This is a great source of funding if you need cash in a hurry but with invoice financing you will still need to collect the invoice payments yourself.
Merchant cash advances
Another way to get your hands on some cash fast is to use a merchant cash advance. With this form of business finance, you receive a lump sum of cash up front and you won’t need to make a fixed payment each month. Finance can be paid back daily weekly or it can be paid out as a percentage of your sales from credit and debt cards. The downside is this type of finance can be more expensive than other options.
This is a common question asked by many a start-up founder who needs cash to get a business off the ground. The unfortunate reality is, a start-up represents a high risk to most lenders making them reluctant to provide loans to untested business start-ups.
While this might seem unfair, think of it from a lenders point of view. With an established business they will have some track record to go over before making the decision to lend. They will see things such as order books, records of paying customers and so on.
With a start up all they are likely to see is a business plan at best and an unproven business model. While the business might have huge potential in the eyes of the business owner, lenders, particularly those on the high street will be far more pragmatic.
Yet the start up phase is when a business is most likely to need the funding which is why it is important to discover what lenders of all types will be looking for before they offer a business loan.
If your business doesn’t have any sort of track record to rely on, then lenders will look at things such as your personal credit rating. If this is good then it will make you less of a risk as the business owner. Also you could look at alternative sources of finance such as asset finance depending on the assets your business might already possess.
Lease Finance – A flexible way to finance
A lease helps you keep your options open when you acquire an asset, by not committing yourself to ownership. So if it’s flexible financing you’re after, our lease finance facility could be the way forward.
How does lease finance work?
We buy and own the asset and you enter into an agreement to hire it from us at an agreed rental over a set period. This may be a more tax efficient way for you to have use of the asset.
You also have the option to retain use and possession of the asset when the lease contract ends – potentially at a price agreed at the start of the lease period. Alternatively, you can sell the equipment for and on behalf of the leasing company and retain the vast majority of the sale proceeds as a rebat of rentals.
At the end of a leasing agreement, the asset is sold and you receive the major share of the proceeds. As the asset owner we claim and reflect any available writing-down allowances on the asset purchase in lower monthly lease payments.
Finance Lease is different to Hire Purchase. Initially when the asset is purchased, you will only pay the VAT element on the deposit / initial rental that you put down. The finance house will pay the remainder of the VAT on the purchase price. Your monthly repayments are for a fixed period and generally a fixed rate. However, your monthly repayments will attract VAT, which you reclaim in your Quarterly / Monthly VAT return.
However, at the end of the ‘primary period’, you have various options:
- Sell the goods to an independent third party and will be offered the majority of the sale proceeds. (Sale price must be agreed with the finance house)
- Enter into a Secondary Rental Period and generally pay 1* monthly rental on an annual basis and never own the goods. (*Secondary Rental Period varies with different finance houses. The star denotes that it is not always 1 rental.)
- Return the asset to the finance company.
- Low up-front costs – you pay a small deposit and can use the asset immediately
- Flexible repayment structure – rental payments can be tailored to match your cash flow
- Fixed or variable interest options – you decide which suits you best
- Tax advantages – as well as reclaiming VAT, you may be able to claim capital allowances and also offset repayment interest against profits (special rules apply to cars)
Assets you can typically acquire with lease finance
- Fork lift trucks / aerial work platforms
- Construction equipment
- Cars and vans
- Buses and coaches
- Plant and machinery
- Agricultural equipment
- Information Technology & Office Equipment
- IT equipment
Unsure whether leasing is beneficial for your business? Call us today to discuss your requirements and we can inform you of all our asset finance options and can come up with a solution to best suit your business needs.