- 28 Dec
Using Property To Secure A Business Loan
The daily update from UK Finance, the trade association for the banking and finance sector, included a "stat of the day" that average house prices have risen by 1,382% since 1978 (they say according to figures by mortgage broker Trussie).That rings true with my own experience of house prices rising but is still a staggering increase.
Whilst that creates all sorts of problems for those trying to enter the housing market, it can mean that you may have a valuable asset against which to secure business finance, such as a business loan, if the amount of equity in a property has risen over time.
There are situations where you may need to have some form of additional security in order to access business finance. For example, a new startup with no trading history is likely to be eligible for invoice finance as soon as they raise invoices for sales transactions. However, if you need some cash to set up your business, prior to being able to raise invoices, that is not going to be an option. In such cases a business loan, secured against property, might be an alternative.
Poor Quality Receivables
Another instance where property can be used is where there are issues with your trade receivables, such that it is restricting your funding levels within a receivables financing arrangement. This could be that there are issues such as disputes/credit note levels, sale and return debts or debts of a contractual nature that reduce the value of your receivables to a funder. Some funders will take additional security to allow higher prepayment levels or even prepayment levels above 100%.
Poor Credit History
The final scenario is where there is a previous poor credit history (e.g. CCJs), or previous business failures (e.g. liquidations), that are stopping you from accessing the business finance that you need. Receivables finance may still be available in these cases, but if you are looking for say a business loan, it may not be so easy to find. Once again, if there is property to secure against, a more liberal view can be taken.