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Bridging loans for small businesses

Thanks to the evolution of a strong and competitive bridging finance market over the last few years, the range of funding options available to small businesses has grown tremendously. Here we examine two ways in which small businesses might be able to use bridging loans.

Property purchase

Commercial property, particularly when bought at auction or otherwise for less than its market value, often requires work to render it habitable or convert it into the correct usage class. A bridging loan could be used to fund the purchase. These loans differ from more traditional commercial finance in the following ways:

  • The application process is far quicker
  • The loan itself is shorter-term

Otherwise, it functions in much the same way; it is still secured against a property, and your lender can still repossess the property if you fail to keep up repayments or redeem the loan in full when required.

However, the nature of a bridging loan allows you to make a purchase far more quickly, potentially allowing you to get set up whilst a commercial mortgage is still being arranged. It also allows you to secure renovation finance against a property that a lender might be reluctant to grant a commercial mortgage for, or to take advantage of a bargain purchase that will only be on the market for a few days.

Bridging loans are less suitable for situations where you do not need to make a quick purchase and would otherwise be able to secure longer-term finance in the first instance. Because bridging loans tend to come with fees that are comparable to those of a commercial mortgage, as well as typically higher interest rates, the cost of using one transitionally is usually higher than simply opting for a commercial mortgage.

Cash flow injection

Every business needs cash to meet its immediate purchasing needs. To fund vital things like bill payments, materials, transport and wages, a business requires more cash coming in than going out.

High positive cash flow can also help a business to expand, if there is a viable opportunity to do so (for instance, the acquisition of new labour, materials, premises or stock).

Whilst a business that is making a small loss month-on-month can often continue to trade so long as it has plenty of cash coming in, a profit-making business without a strong cash flow will struggle to make ends meet in the short term. Similarly, a business that has a lot of its money tied up in assets – such as commercial property – might experience poor cash flow.

If your business is experiencing a one-off ‘cash flow crisis’, securing a bridging loan against your commercial premises may be a solution to balancing your inflow and outflow. Similarly, if you want to take advantage of a business opportunity but don’t have ready access to cash, you may consider using a bridging loan to raise the needed funds.

A bridging loan might not be so helpful if your cash flow problems are persistent or recurring, perhaps because you have surplus stock or are struggling to recover payments from customers. If this is the case, you might want to consider taking steps to improve your internal operations, or securing finance from another source. Similarly, if the business opportunity you hope to seize involves a particularly ambitious target or may otherwise fall through, using short-term secured finance to fund it may not be the most appropriate route.

Bridging finance works best when you have a solid exit strategy in place. If you have a sure means of repaying it, however, then a bridging loan can be an invaluable tool to quickly buy premises or goods or provide a short-term boost to your operating capital.

Written by Ben Gosling for commercialtrust.co.uk.

Your property may be repossessed if you do not keep up repayments on a bridging or commercial loan secured against it.

Some bridging and commercial loans are not regulated by the Financial Conduct Authority (FCA).

Are you an employee of an insolvent company?

If the answer is yes or you're not really sure, it will undoubtedly be a worrying time. You may have already been told the company is going into administration and there will be possible redundancies.  Now you need to know what options you have and how the process works, in terms of redundancy pay and government help. 

Watch our video below on your rights as an employee:



The Department for Business, Innovation and Skills can claim for redundancy pay on your behalf and if the insolvent company does not have sufficient funds to pay out, then you can receive statutory pay from the government for a certain length of time (the maximum government payout is currently capped at £464 a week). 

If you have any questions, you can call DBIS on 0845 145 0004 Monday to Friday (9am to 5pm, calls charged at local rates). There is also a handy guide on the government website on employee rights in company insolvency.

Unemployment rate falls again

The number of unemployed people in the UK during the final few months of 2014 fell to 1.86 million, a drop of 76,000. 

The Office of National Statistics revealed the unemployment rate is now at 5.7% of the adult population, significantly lower than expected. The number of people in work is at its highest – the employment rate is 73.2%. Wages had also risen by 2.1% since the same period in 2013. 

The North East showed to have the highest number of people unemployed while the South West had the lowest number.  

Along with the fall in inflation (latest figures show 0.3% in January), the overall fall in unemployment shows the economy is improving at a fast rate, much to the delight of the Chancellor (ahead of the general election!) 

KSA Group Seminar Review

The seminar held on the 12th of February was a great success.  We had over 60 people in attendance.  Due to some last minute IT issues Keith apologies for not being able to chat to people prior to the presentations.

To recap we covered 3 main topics; Pension led funding which is an innovative method that allows directors to be able to invest in their own business.  We were treated to a presentation that had animated cartoons done by a pension expert who also happened to be a cartoonist!

Next was Alison Loveday of Berg who talked about how they were taking on the banks in the Mis-selling swaps scandal. Alison pointed out a number of rather obvious inappropriate products and advice.   In one instance the banks were selling 10 year swap products to hedge a 3 year loan!  One particular case study she highlighted was where a property company's directors were deemed as having sophisticated knowledge of a swaps product because the son of the director was an accountant.  An expert on derivatives said that the relevant product was so complex it was "on the moon"  This particular company now has leave to sue for £32m. You can download the swaps mis-selling presentation here

Finally, we had Keith Steven of KSA Group explaining how sub prime lending appeared to have started again with hundreds of alternative finance providers doing little due diligence on companies and lending them monies backed up only by a personal guarantee.  As always we highlighted that these liabilities can be dealt with by including them in a restructuring provided that the providers understand that they are likely to get a better return than if they pursued the directors.

Jonathan Reeves was as usual a good host and cracked a great joke about "50 shades of grey hair"  being an essential element of the turnaround business.

There was plenty to drink afterwards and networking continued throughout the evening and in the pub afterwards. For information on the next event in Birmingham please contact Robert Moore at robertm@ksagroup.co.uk

HMRC to stop self-assessment tax return penalties?

HMRC has released a 26-page document proposing changes to self-assessment tax return penalties. Currently, people who miss the tax return deadline by one day have to pay a fine of £100, something which HMRC is now considering as too harsh. The government department believes honest taxpayers are being punished by the system just because they’ve filed their return a day or two too late.
 
The £100 fine (which has been in pace for 20 years) is the same for those who pay up to three months late which shows there needs to be some sort of new system which targets the tax avoiders, not necessarily the late filers. HMRC is proposing a system that fines those who repeatedly fail to declare their tax returns on time.   

Many people could escape these £100 penalties which would be a great relief to some taxpayers. Only a few weeks ago it was revealed nearly 900,000 people had missed the deadline - a tidy sum for HMRC!

In the document, HMRC states, “We want to consider whether we could better differentiate between deliberate and persistent non-compliers and those who might make an occasional error.”

“One option could be a progressive system similar to penalty points for motoring offences so that initial financial penalties are avoided, but more substantial penalties then apply for more serious failures or for persistent non-compliance.”

The taxman is also looking into extending its list of reasonable excuses for missing the deadline, for example ‘finding it difficult to complete a complex form’ or ‘filling in the tax return first time’.

It’s time to change the way HMRC dishes out penalties as many get punished even when they don’t owe any tax. The only downside to changing the penalty could be a general lack of motivation to get returns in on time.  

Risks hidden on crowdfunding sites, says FCA

The Financial Conduct Authority has revealed there is concern with certain aspects of crowdfunding websites and how they present information to the public.  

25 websites that were reviewed demonstrated a lack of proper information, which could potentially mislead investors about the risks involved. The FCA thought some websites were unrealistic and too optimistic about certain investments. 

Furthermore, some sites implied that lender’s money would be secure as the process was compared to that of banks and saving accounts. 

Gonçalo de Vasconcelos , the CEO of crowdfunding company SydicateRoom, welcomed the FCA’s views and agrees websites need to be more transparent by including the clear risks involved when investing. SyndicateRoom was not one of the companies reviewed as misleading by the FCA.

He said, “Sadly these shortfalls in the behaviour and practices of just a few of the platforms can hurt the standing a reputation of the whole zone, which is both unfair and unhelpful to everyone concerned, including investors”.

It’s expected the FCA will report on their final findings later this year, which will include views about online communications and social media. 

Crowdfunding is fast becoming a popular way for individuals and business to acquire funding which they may have been unable to get from banks. A crowdfunding platform allows a large group of people or investors to fund a project or business idea. In return, they can receive merchandise or tickets to events etc and sometimes even shares, depending on what the project or business is. 

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