Digging deeper into Commercial Finance

By Paul Michel, Director of Paul Michel Investments

Since moving into financial services, my greatest discovery has been how absolutely dedicated small business owners are. It is not just financial and time commitment, but a whole range of dreams, values, relationships and sense of self that is “on the line”. Coming from a career in education, I have always been aware of the personal growth bred by success, and cost born of failure. In surveying a range of clients, colleagues and business

owners, I find that ideas around Commercial Finance vary widely. Some are familiar, others not. Some are comfortable with it, others slightly suspicious. Some know the range of funding options, others only one or two. Not all know whom to contact, nor the costs or security required. In all cases, however, concern over cash flow takes top

priority. Without cash flow, a business is hamstrung. As Matt Bull, a business coach with years of company turnaround experience, told me, “Companies are often ‘stuck’, either from distress or in their growth”. Companies in such situations need the right people in

their corner. Granted a clear vision and set of values, meaningful key performance indicators and a solid business plan, companies need to know their numbers well, and know where and when to seek help. Matt lists relationships with bankers, brokers, accountants, and coaches as key. Emphatically, he told me they must be trusted, as they are fundamental to helping face challenges and giving support. Commercial Finance is a primary tool for fuelling growth.

Traditional business loans and bank overdrafts will always be part of the picture, but a greater variety of products are available today: asset finance, development and bridging loans, commercial mortgages, selective or whole of ledger invoice finance, lines of credit, procurement and supply chain finance. Moreover, the pool of lenders has grown to include institutions, crowd-funding, angel investors, and private funds. In familiar emphatic tones, Matt told me a great pitfall

with commercial finance is to align your company to a product. “The product is there to support you and what you do best,” he says, “not the other way round”. Just as golfers need the right club for their swing, so a business needs the right finance. Moreover, businesses will utilise Commercial Finance in different ways. An overdraft facility, for instance, can be a blessing or a curse. Explains Matt, “It is mindset dependent – some use it judiciously, others see it as a ‘new zero’.”

Speaking with a trusted broker or bank manager

enables business owners to find the right product for their company, and for their patterns of behaviour. For example, another popular facility, Invoice Finance,

can be tailored to meet the particular requirements of companies. A “whole of ledger” factoring approach offered by banks and larger financiers can be very useful for high-turnover businesses with predictable flows of cash. Entering invoices through a portal keeps a consistent and easily-checked account of debtors and creditors, and allows businesses to draw down on funds they’ve earned, but not yet been paid. Selective, or spot invoice finance, however, can be

used more sparingly to enable cash flow at times when it’s needed, and to a level comfortable for the company. Such finance can often be mated with business loans or supply chain finance – keeping the structure neat, and with a discernible end-point. Returning to an earlier point, businesses need to

know their numbers well, and be aware of the security required and costs associated with commercial finance. Eligibility is judged differently among lenders, and rates or fees must always be determined at the time of application. Some lenders are more flexible than others

around allowable risk profiles, and it is often the case that companies can find funding if they are willing to seek it from some of the less traditional lenders. Consulting with a good commercial finance

broker is a useful first step in understanding the breadth of products and lenders in the market. I began this editorial

paying respect to the level of commitment shown by business owners, evident in so many aspects of their lives. It is the role of commercial financiers and brokers to give appropriate opportunity for this commitment to bear even greater fruit.

‘Businesses need to know their numbers well, and be aware of the security required and costs associated with commercial finance’

60 business network November 2019

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