commercial finance, factoring has become extremely popular
and in some cases it tends to replace the traditional bank overdraft type of finance. In factoring, the bank takes over
the collection of the business' unpaid invoices. For each invoice
factored the bank pays to the business a fixed percentage of
the invoice value. This has the advantage of improving cash
flow by realising funds immediately.
the bank may also be prepared to maintain a full sales ledger
credit control service for the business that
is factoring. The banks are usually only interested in ‘clean’ debt.
If an invoice is subsequently disputed it is handed back to the
business to settle, and the bank will reclaim the monies paid
to the business in respect of the invoice.
Invoice discounting is similar to factoring, but the only thing
is that it does not include the sales ledger or credit
control function that remains with the business. The customers
receiving the invoices are not therefore usually aware that the
invoice discounting arrangements exists.
As far as leasing or hire purchase arrangements are concerned
they are the best method available today for enabling businesses
to acquire a variety of assets such as plant, machinery and vehicles.
The arrangements can greatly assist the cash flow, as they do
not require the large down payment normally expected with the
acquisition of such assets. Furthermore such schemes can often
have considerable tax advantages for the business.
Bank loans are the most common and are available to cover medium
to long term finance requirements involving capital
expenditure. The Banks will often take steps to protect the amount
they have lent by taking security from the borrower. This will
usually involve a fixed charge over land and fixed assets owned
by the borrower. Assets subject to a fixed charge cannot be sold
without the bank's consent. Indeed if the borrower defaults on
the loan repayments, the bank has power to sell the charged assets
and recover the outstanding amounts under the loan. A fixed charge
is therefore like a mortgage.
If the borrower is a limited company the banks may go further
by requiring a floating charge in addition to a fixed charge
and asking the directors to give personal guarantees.
a commercial loan is the most flexible option, though
it's not always the cheapest and leasing or factoring may be
more viable; however, a commercial loan will provide you the
flexibility to structure the repayments to suit your business
Your loan will be structured as either a variable rate that
can fluctuate with any changes to the base rate, or a fixed rate,
which will remain steady for the term of the loan and provide
benefits of obtaining a commercial loan is that you retain
ownership of the business and any equipment you purchase with
the loan and these loans can be used for almost any purpose and
interest payments are tax deductible.