A good commercial finance deal? Don't bank on it!

At some point most businesses will need extra cash perhaps to buy new premises or to buy new plant and equipment. In addition many expanding businesses find that they are exhausting their working capital funding additional stock, work in progress and debtors.

For most business owners or financial directors, the first “port of call” to obtain this business funding is usually their bank. It is generally assumed that “The Bank” will provide the required funding on the best possible terms because of the relationship that already exists between the business and the bank.

This is rarely the case and in fact in many cases the opposite is true. Bank managers are target driven and will seek to provide finance on the best possible terms for the bank and not the customer. This usually means additional arrangement fees, higher deposits and interest rates which are higher than the risk dictates. In addition most banks will seek to lend over shorter terms usually on a repayment basis only.

It is well known that banks will “cherry pick” the finance applications which are submitted to them and will usually decline applications, which fall outside their limited criteria. Therefore a business which may already have relatively high borrowings or whose trading has historically been weak may struggle to obtain further funding from their bank.

Turned down by your bank? Don't worry...

So what can be done if a business has its application for additional funding declined by their bank? Don’t worry because the likelihood is that the required funding can be secured in the open market on better terms than those which would have been available from the bank. For example Commercial Mortgages are now available on a “Non Status” basis. This means that the last three years accounts are not required as is usually the case and loans of up to 85% of the purchase price are available, some with “interest only” periods.

In the open market there are a host of specialist lenders who have perhaps developed their expertise in funding a fairly narrow sector of the market. For example a particular lender may focus on providing Commercial Mortgages for businesses or Development Finance for residential or commercial builders. Another lender may focus on Invoice Finance for the manufacturing sector. One thing is for certain, in the open market there are lenders who can provide the finance for most types of business which can be cheaper and more flexible than that which is offered by the banks.

Don't expose your business to banking risks...

Another benefit of sourcing finance in the open market rather than from the business bankers is that not all of the business borrowings are provided from just one source. Most business owners will no doubt remember the days, not so long ago, when certain banks decided to limit their exposure to certain sectors and as a consequence were reducing or “calling in” overdrafts and other borrowings. The old saying “don’t have all your eggs in the same basket” is useful advice.

Given the benefits of sourcing business funding in the open market this should be the first choice for all businesses looking for any of the following:                       

1. Commercial Mortgages of all types including Buy to Let
2. Commercial and Residential Development Finance
3. Invoice Finance including Confidential Invoice Discounting
4. Asset Finance for all types of Plant and Equipment
5. Stock Finance
6. Import and Export Finance

So business owners and Financial Directors who are seeking additional commercial finance should not restrict themselves to their current bankers to source their requirements. In addition to obtaining a quote from the bank you should also contact a reputable Commercial Finance Broker who adhears to the Business Finance Code and will be able to offer access to the open market.