Commercial Finance In The Cost Of Living Crisis
As a business owner, director or manager who survived a global pandemic and supply chain crisis, and is now right in the middle of this cost-of-living crisis, you know that thinking about cash flow conservation isn’t just down to your accountant.
It is about self preservation and keeping the doors of your business open.
The world since early 2020 just presents you with one certainty – that there are no certainties!
You don’t know the impact the cost-of-living crisis will have on your business until they ‘happen’ – or what direct impact they will have on your customers or suppliers – which in turn of course impacts you as well.
Cash flow conservation is not a new concept – plenty of old tricks, like:
- chasing your receivables
- negotiating your payables
- cost cutting your business costs
But the last 2 ½ years and its uncertainties have put an additional urgency on ensuring you preserve a level of cash within the business where possible.
For example, you can’t still be on the same plans and budget for 2022 that you started the year with – they didn’t factor in:
- soaring energy costs
- fuel prices inflated for you and everyone that delivers to and for you
- staff shortages and wages spiralling
- rampant inflation in all of your overheads
- continued supply chain crisis
What can help you to conserve cash in your business while you still have overheads, delays to client payments and rampant inflation driving up all your costs?
The need to use commercial finance might be a bitter pill to swallow for people who have always previously managed without it?
We suggest that everyone should find out what is available in terms of finance products that can keep cash flowing in your business in this environment.
Cash flow is the life blood of all of the businesses that we are dealing with.
Is maintaining cash flow to keep your business operating – and able to take up new business – worth sacrificing a small amount of margin to cover funding costs?
We wanted to provide some examples of commercial finance products that can help your business to conserve cash flow and navigate through the cost-of-living crisis.
Commercial Property Refinance
Your business may have commercial property that you own that has an outstanding mortgage on, or is unencumbered with no debt outstanding on it.
In short you may have ‘equity’ in your property.
Commercial property for trading businesses will commonly be ‘owner-occupier’, the premises that they operate from.
Refinancing commercial property could be used to conserve cash flow in more than one sense:
• Refinancing your existing mortgage onto a new deal could improve the rate of interest that you pay (reducing outgoings) or it could offer you fixed rate protection for an agreed period (limiting your costs for that agreed period)
• Refinancing commercial property to raise additional funds for your business is doing so over an extended period (commonly 15 – 25 year terms) and often at a significantly improved interest rate to those available on short term business loans, due to the security that the lender has in your property
We work with lenders who can also consider residential and BTL property as security for loans for business purposes – again possibly offering lower rates and longer terms than unsecured lending.
This is not suitable or viable for everyone, but if it was it could significantly improve your cash flow profile over a short term unsecured loan.
Invoice Finance
Invoice Finance may not be the most suitable product for you in every part of the economic cycle.
But what other finance facility will pay you for most of the work that you have completed, just a few days after you have completed it, when your customers won’t be settling anything with you for another 60 to 90 days?
Without that immediate cash flow you will have to cover the cost of wages, contractors, overheads, suppliers – and then if you have the opportunity to take on more work or another project, do you have the cash flow to do that now or will it have to wait until your customers settles in the future?
Trade Finance
Depending on the nature of their business, companies will either buy raw materials or ‘finished goods’ from a manufacturer or supplier.
Trade Finance can be with UK based companies as well as overseas – and your business can improve prices and terms from having the backing of a trade facility and being able to pay earlier.
If you are paying in cash from the point of ordering to the point that your customer settles with you – how long is your business literally without that cash amount in your cash flow?
Short Term VAT and Corporation Tax Loans
With the demand on cash and rampant inflation driving up your overheads, it is no longer a simple task to put your TAX to one side so that you can cover the VAT or Corporation tax bills when they land.
We have a lenders offering short term loans to help to settle some or all of your VAT Corporation tax bills – you can repay weekly or monthly as suits you best – but the big win for you here is conserving cash by spreading the payments and keeping some liquidity for whatever might come next.
Lease or HP Over Buying For Cash?
We work with expert lending partners who can source the most suitable Lease or Hire Purchase (HP) deal for your company.
Whether you are looking for New or Used vehicles, a single vehicle or entire fleet – using the right finance for your company in this environment is the smart choice.
The great thing about Asset and Vehicle Finance is that you know the cost to you over the term of the finance up front – so for example on a van you can easily compare that Lease or HP finance cost to your cost for outsourcing your deliveries.
Return on your investment in the van?
Return On Investment = Income generated – Cost to finance
If your margin is increased compared to outsourcing – does that make the commercial decision for you?
Asset Refinance
Your business may have hard / soft assets, or stock, that is unencumbered or with significant equity, that you might consider putting to work to generate much needed cash flow for your business at this time.
We work with Asset Based Lenders who our clients use to access cash that they already have but that is locked up in the existing assets of the business.
Conserving cash within your business right now makes sense – none of us know what is around the next corner or when we will need a cash buffer.
If you are planning your route through this cost-of-living crisis, and looking for ways to keep the cash flowing through your business, why not talk to us about how commercial finance products could help you?
Mark Grant, September 2022.
