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• 30 Apr

  30K Business Loan For A Vending Machine Supplier.

  Vending machines is one of the diverse sectors that we have been able to assist recently. We recently helped a supplier of vending machines arrange a long term business loan. The loan was for £30,000 over a long term, which will provide a significant capital injection for their company.

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  Whilst this was a relatively modest loan, we are able to help arrange much larger amounts. However, this particular case demonstrates how a small amount can make a big difference to a small business.

  The way that a business loan works if very simple. You receive a fixed, lump sum into your bank account once the loan is agreed. You then repay that amount (and interest at a pre-agreed rate) over the term of the loan. The term is the time period over which the loan it to be repaid, between 3 months and 10 years.

  You make a fixed monthly repayment, by direct debit each month, on an agreed day each month.

  Therefore, as you will repay a fixed amount each month, so you can budget for it in you financial forecasts. The amount owed then reduces each month, as you meet the agreed repayments.

  Once you reach the end of the term, if you have met your payments each month, you will have repaid the principal sum (the amount of the loan), and the interest on loan.

  Prefer A Revolving Credit Line?

  Some companies prefer a revolving credit line. This is a facility that doesn't get repaid over time, but is repaid and redrawn on an ongoing basis. Facilities such as receivables financing and overdrafts can work in this way.

  With an overdraft you have an agreed limit that you can go overdrawn. You will pay interest and charges on the facility, but you decide if and when you repay the principal sum. Although bear in mind that overdrafts are repayable on demand. So your bank could decide that the principal sum is to be repaid at any time.

  With receivables financing, if your monthly level of invoicing is steady, or increasing, and payments are regular from you customers, you can have a revolving facility that continually renews. This works as follows:

  • You invoice month 1 say £30,000.
    
    
  • You invoice month 2 say £30,000.
    
    
  • You not have 2 months sales outstanding (assuming no one has paid) i.e. £60,000 is outstanding in unpaid sales invoices.
    
    
  • You go to a receivables financing company who prepay 85% against your receivables. This generates £51,000 of funding that you can spend.
    
    
  • In month 3 say all the month 1 sales are paid i.e. £30,000, and you raise another £30,000 of sales invoices. Assuming this happened simultaneously, your debtor book still stands at £60,000, so your available funding is still £51,000.
    
    
  • The new invoicing has generated new funding at 85%, but at the same time the payment of £30,000 reduced both your outstanding debts and your debt to the financier. In addition, you will receive the remaining 15% of the sales that were paid (assuming no charges to make the numbers simple).

  In that way, the amount of funding would stay stable assuming that sales and payments matched each month. If sales increased, so too would the amount of prepayments and funding that you received.

  By Glenn Blackman