There’s nothing like a new tax year to concentrate the mind on all things financial. Here Compass Business Finance walks you through the most noteworthy considerations.
It’s spring, optimism is in the air, and as we look to move on, Compass Business Finance shares its insights on how and where to gain the funding needed to do so.
1. Explore your options
There’s more than one way to skin a cat, or so the saying goes. Although it sounds pretty distasteful, the saying makes a good point. When looking at funding solutions to improve your cashflow, increase your monthly headroom, invest in assets or any one of a plethora of other business requirements, you have many options to consider.
One of the most dangerous phrases in business is: ‘We’ve always done it this way’. In our hectic business lives it’s easier to keep on doing what we’ve always done - especially if ‘it ain’t broke’ - than to switch things up. But you could be missing out. Are you benefitting from the most favourable funding options - are there better ways of achieving the same outcome? For example, if you want to improve your monthly headroom, do you refinance your existing assets, or do you start invoice discounting?
As small business owners, we’re often required to wear many hats, and to be a jack-of-all-trades - and for the most part, we’re incredibly good at it, but when it comes to the many nuances of finance, it’s worth speaking to an expert.
2. Expand your horizons
There are many routes to finance, most obviously our banks. However, there are a growing number of alternative finance providers that are making finance for smaller businesses more accessible than ever. As Keith Morgan, former chief executive of the British Business Bank wrote in the ‘Business Finance Guide’: “This increasing diversity of supply means smaller businesses should be able to exercise more choice when considering financing. Although our research shows businesses are becoming increasingly aware of their options, many others are still hampered in their ability to invest, grow and create jobs due to a lack of such awareness and understanding of their choices.”
Whilst almost 50% of UK SMEs rely entirely on their banks for finance, many established companies use a blend of finance products and providers. We believe that this is where finance brokers (like ourselves) come into their own - it’s our business to be aware of all your options and present you with the best solution for your needs, regardless of the source.
3. Share your vision
Gaining finance can be a very transactional experience - you place a request with a lender for a particular facility and they come back to you with a simple yes or no answer. When it works, it seems great and is a very straightforward approach for simple transactions, like financing a new piece of kit, but you can end up with numerous finance agreements with different lenders, rates and end dates that have never been looked at collectively.
By sharing your vision - even if you haven’t got it all figured out - and building a relationship with your finance provider, they can work with you to create a long-term funding strategy that plays into both your immediate needs and future aspirations.
4. Consider your timing
Timing is often crucial in business. It may not be everything, but when we think about start-ups, product launches or having the finance needed to get a project off the ground, it is rather key. Many of you are likely to have accessed the Bounce Back Loan (BBL) or Coronavirus Business Interruption Loan Schemes (CBILS) over the past year to support your business, both examples of time-limited schemes that are no longer available.
However, access to finance is still extremely attractive, with low interest rates and the ability of banks, along with non-bank lenders, to provide the Recovery Loan Scheme as well as other favourable funding structures, for products including term loans, overdrafts, asset finance and invoice finance facilities.
Lining up your business and investment plans with favourable funding opportunities, schemes or grants can provide significant savings, giving you an incentive to either hold back your plans or put them into action sooner.
5. Stay informed
A little over 12 months ago none of us knew what a BBL was, or what CBILS, or even a CJRS - now these acronyms require little explanation. Navigating a landscape that is forever morphing - perhaps now more rapidly than ever - is not easy, so here are three of the latest funding considerations for you:
- The Recovery Loan Scheme is the successor to the initial Coronavirus loan schemes (BBLs, CBILS and CLBILS). It supports access to finance for UK businesses as they grow and recover from the disruption of the pandemic. Businesses of any size can apply for funding of up to £10m for a single business, and £30m for a group, to the end of 2021, with the Government supplying a guarantee to lenders of 80%.
- As an encouragement to businesses to invest in new plant and machinery over the next two years, the Chancellor has introduced a ‘super deduction’ enabling capital allowance claims of 130% against qualifying expenditure.
- Previously, the loss carry back allowance meant that businesses could offset business losses against the same accounting period or the previous 12-month period. This has temporarily been increased to a period of the previous three years.
6. Do the prep
Look at your business from an outsider’s or investor’s perspective, consider the questions that they’re likely to ask, take a comprehensive look at the risks, challenges, and opportunities, and ensure you can articulate the benefit of the additional investment or funding you wish to get for your business.
Some lenders work across all sectors of the market and won’t necessarily understand the nuances of the print or large-format sector, so they’ll need more explanation, while other specialist industry lenders will be able to understand your requirements more easily.
And finally, make sure you have your accounts and business forecasts ready to back-up your future strategy.
7. Take a flexible approach
No-one could have predicted or prepared for the year that’s been - business owners have had to become more agile and adaptable than ever. We’ve developed approaches and skills we never thought we’d need but will stand us in good stead for the future. It’s important that our approach and access to finance is as flexible as our business planning.
Compass advocates a flexible approach to finance, tailoring individual solutions using a range of lending facilities that we can access on your behalf. If plans change down the line, the situation can be reviewed and reimagined.