During an economic downturn, many companies find themselves at risk of failure because they are struggling with cash flow to maintain their day to day business activities. This may be the case even if there is a strong order book as customers fail to pay invoices on time as they in turn are trying to preserve cash. In addition there is also the increased risk that the customers themselves may stop trading leaving outstanding invoices unpaid.
High Street banks are currently extremely reluctant to lend because of the huge bad debt risks they have exposed themselves to over the past 5-10 years. This is causing a lack of available funding through traditional routes such as bank loans and commercial mortgages. Faced with this situation, it is not surprising that many businesses are running out of cash and are facing the possibility of bankruptcy and liquidation.
There are other funding options collectively known as business re-financing which should be considered when a company needs additional working capital (cash) but cannot obtain this through traditional sources. The most significant of these are as follows:
Asset refinancing
Raising finance secured on the value physical assets owned by the business such as plant or machinery.
Invoice financing
Raising finance on the strength of invoices already raised for work carried out. Money is paid up front by the financing company and then collected over time when invoices are paid.
Trade financing
Finance provided to enable a company to fulfil a confirmed order. The finance company will normally pay suppliers directly and in turn invoice the end customer. Once the customer has paid, adhering to the typical payment terms, the finance company releases any profits back to the business.
Naturally there are certain elements of the business refinancing process which have to be carefully considered. The main one of these is that personal guarantees will have to be given by the company directors / owners. This is of course no different to a standard business loan. However, the business refinance loan will be based on the availability of real company assets or actual invoices or orders thus reducing the risk of the loan not being paid and guarantees being called into play.
Where a company is facing bankruptcy and liquidation due to a starvation of cash, all possible options to secure the required finance should be considered. Business refinancing may not be suitable for all businesses. Nevertheless, where suitable, it can certainly provide a viable alternative to traditional sources of finance such as bank loans and commercial mortgages.
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Derek Cooper is Managing Director of
Cooper Matthews Ltd, and a member of the Turnaround Management Association UK.
More details about Business Refinancing at
http://coopermatthews.com/business-refinancing.html
Cooper Matthews specialise in Business Refinancing and Business Recovery Services Advice providing straight forward insolvency advice for businesses with financial problems to turn your business around. They have significant experience in working with small to medium sized businesses. Derek's experience of both corporate insolvency and business management puts him in a position to be able to understand the challenges facing businesses in today's economic climate.
