MONEY SHOP
Footwear Today’s financial plumber, footwear retailer David Gummers, talks about raising capital for investment.
B
efore I start the financial part, I would like to offer my thoughts and prayers to Mr and Mrs McGrady and to wish them and Stuart’s friends and family a long life. Stuart was always such a delightful and cheerful
young man. When I saw him I always imagined him running down the wing at Murrayfield scoring a try against the Auld Enemy!
I have decided this month to be a little less controversial, as I think Stuart
would have said ”you always give the suppliers a hard time.” I think on the financial side this month I’m taking a gentle look at ways to
raise capital for investment. I have been doing this in my alter ego away from the shoes. There are several ways of doing this depending on your financial circumstances.
First rule is to ascertain your personal and business credit score. Most of
the credit agencies offer a 30 day free trial. You can of course write to them and for less than a £5, they will send it to you. This is worth doing as big companies doing get your details wrong occasionally and this can have a big bearing on the interest rate you will be charged if you borrow money. There are fundamentally two types of loans you can take out.
You can take out an overdraft facility that is unsecured; this generally will
be more expensive than a secured loan as the lender is taking a gamble based on your figures. With interest rates being so low you should be able to get a loan at 2% above base if you are a good risk.
A secured loan against your business property or against stock is an
economic way of borrowing you should never pay more than 1.4-1.8% above base and you if negotiate hard be able to get this quite close to base rate as there is no risk to the lender as they will always get their money back.
Always avoid putting your house against any loan, you don’t want to risking being without a roof over your head.
Before you agree to any loan ALWAYS read the penalty clauses for paying
off early-and never take out a loan that is unrealistic. Decide how much you need and add 10% for contingency. The lender may not give you all that you ask for. They have strict lending criteria, so do not take it personally if a lender turns you down. Go back to your drawing board and work out if they would less - or maybe the amount you need, with more conditions.
Before you sign anything always take some independent advice, as you
may be so excited about your project that you forget the basic business stuff. If your annual turnover is £250,000 do not ask for a loan for £750,000 a lender will turn you down and even if it were to offer you the loan you accepted, ask yourself how would your business pay its other bills!!
There is now a third way of getting people to lend you money. It’s called
‘Peer to peer lending’, which might be worth considering. It is more expensive than a traditional loan, but cheaper than a 'pay day' lender (which is something I would always avoid!), A private individual will lend you the money at an interest rate of around 8%. Again, there are risks involved because this will be done by contract and if you default you could easily end up losing your business, as very few people will lend in this way without either the security of either the business or its stock. This is useful if you struggle to get credit in the normal way.
If you would like David to look at your business costs, he promises that if he cannot save you any money you pay him nothing. But for every pound he saves you pay him, 15 pence. If you want to learn more email David on david@fdickinsonfootwear 01229 580654 Website: http://www
.fdickinsonfootwear If you have to borrow money to expand your business remember it is even
more important to keep an eye on your other costs, as it is no longer entirely your money. The lender is there to make a profit for his business. They do not lend money because they like you.
They will wish to see your accounts and will expect you to do everything
you say. Do not promise to pay them on the 1st of the month and pay on the 10th.
If you are having difficulties keeping up the repayments always tell the lender. Do not bury your head in the sand and hope the problem will go away. Sadly, it will not. Even if you are a model customer, if you default this will go on your credit rating and you be unable to borrow in future. Similarly, if you do not act professionally you will find it virtually impossible to find a lender. Lenders are not interested in bad risks.
A final thought, do not be tempted accept the first offer, always shop
around and try to do a deal with the institution or individual you trust most. Have a look online at the track record of the lender. Do they take away the umbrella when there is a shower of rain, or do they back you when the business hits a rough patch?
Take your time evaluate what you need to borrow - and never put your home or your business in danger with excessive borrowing.
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30 • FOOTWEAR TODAY
• MAY 2015
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