Posted on | July 13, 2012 | No Comments
Many commercial customers are finding that their existing banks are saying no to further borrowing applications, in addition to some customers having their overdrafts and other facilities withdrawn, and being asked by their banks for their money back. Some banking facilities such as bridging loans have been withdrawn from the high street banks altogether. Admittedly this is in part due to the tighter lending criteria that the banks now have for providing finance. However in many cases it has nothing to do with criteria, they are just looking for ways to get their cheap money back so that they can lend it out to someone else at a more profitable interest rate.
We speak to many business owners who are flabbergasted at being refused a new facility or an increase to an existing facility, especially when they are long term customers and have a perfect credit record with their bank. Business owners shocked at the thought of being considered a bad risk usually want a new commercial mortgage facility with a new lender so that they can raise the additional funds that they require and tell their bank where to go!
However it is not necessarily because the customer is considered a bad risk, it is often because the customer has a commercial mortgage facility that was taken out before the credit crunch when the banks had lots of cheap money to lend, and are therefore borrowing money at a very low rate. By calling in an overdraft or turning down a commercial loan request the hope is to encourage their customer to change lender, thereby paying back the cheap money meaning it can be lent out to someone else at a higher rate. By doing this the business owner will wind up with a new lender and a higher rate on their new commercial mortgage than they previously had, probably using money paid back by another unhappy business owner, who is now with your old lender on a higher rate, borrowing the money you paid back.
It is like most businesses, for example it?s similar to a car hire company deciding to do a great deal for a customer who requires a car on a long term hire, at a time when vehicles are plentiful and cheap. Later on during the course of this agreement the availability of new cars significantly declines and prices go up. The hire company will want to make the best use of their existing stock of cars, therefore would they try to end their agreement and take the car back, by perhaps being unhelpful and looking closely at any broken terms in their agreement. If the long term hirer found the hire company to be suddenly unhelpful, would he give the car back and look to hire elsewhere? If he did he would probably find himself paying much more due to the rise in the price and drop in availability of cars.
Unfortunately business owners often feel that they have no option but have to refinance their cheap facilities with a new lender because they need to raise additional finance for their business. However, there can be other options other than overdrafts and bank business loans available, that could mean the cheap facilities can stay in place and the required additional finance raised elsewhere. These options include commercial loans, asset refinancing, invoice finance and factoring. All of these options are relatively straight forward and can be put in place quickly.
In particular asset refinancing is a great option because it can be arranged quickly, rates are very competitive and it is possible to raise large sums of money. Asset refinancing makes use of the available equity tied up in equipment, machinery and vehicles that are owned by the business. Any asset being used to provide asset refinancing will be valued to determine how much can be raised against it. Most valuable assets can be used for refinancing provided that it is identifiable, for example it has a serial or registration number. Popular assets used for refinancing are company vehicles including cars, vans and lorries, plant equipment, farm machinery, factory equipment and office equipment. Assets used to provide asset refinancing are retained and used by the business in the same way as they were before. In return a monthly or quarterly repayment is made in order to repay the interest and capital.
A commercial bridging loan can provide an alternative finance option if the funds are only required for a short period of time and there is a sure way of repaying the bridging loan. Invoice finance can be used to make available money owed to the business through invoices that have been issued. Being able to have access to money as soon as the invoice is issued rather than when it is paid can make a huge difference to a businesses? cash flow.
All because your bank may say no, doesn?t mean you haven?t got other options. There are many ways by which a business can raise money and it is well worth looking at other options because you may well find that there are more useful as well as cheaper alternatives out there.
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