In March the CoronaVirus Business Interruption Loan Scheme (CBILS) comes to an end. The unprecedented financial support offered to UK SEM’s across both CBILS and Bounce back loans has seen over 1 million businesses supported with access to government back lending, with over £60bn lent (as of December 2020).
But what’s next? As the government starts to roll back it’s emergency support mechanisms, it’s fair to say the UK is still far from being back to any kind of normal. With a large part of the country in tier 3 (which sees the majority of hospitality businesses shut down), the effects of the Chirtsmas easing yet to be seen and the impact of Brexit still unknown, 2021 still promises more uncertain times.
As I write this no formal follow up scheme has been announced but the expectation is that the government will release a hybrid of the previous EFG & the current CBILS scheme. Early reports in the Financial Times point to a new scheme that will see up to 80% of the loan backed by the government, with interest rates that can be charged by the lender capped at 15%. What IS expected is that some form of personal guarantee from the borrower will return, something that wasn’t part of the original CBILS support.
For sure whatever comes next will have less generous terms than the current support.
At Capitalise we have been at the forefront supporting businesses around CBILS loans, working with more lenders than any other platform and seeing success rates in excess of the wider market (45% market versus 75% via Capitalise).
But should a business be looking outside of traditional working capital unsecured lending? Capitaliser Co-founder and CEO Paul Surtees believes that Invoice finance will be a critical product for those B2B businesses who raise invoices. But invoice finance hasn’t always been a first choice for businesses looking for funding.
Historically invoice finance was seen as a distress product, something that banks moved you into if your business was struggling. In fact I once worked for a business that refused to deal with a business as they used a ‘factoring’ company.
Incorrect Invoice finance myths include:
Your customers will think you’re struggling.
It’s a really expensive form of funding
It’s only for companies in trouble.
Paul Surtees (Capitalise CEO) Invoice finance is one of the most powerful funding products available in the market. With approximately £80billion of cash flow provision annually, it powers cashflow intensive businesses the length and breadth of the country. However by the number of SMEs, the penetration is tiny with approximately 40,000 businesses using it in the UK. Barclays alone estimates it could fund 700,000 of its SMEs via invoice finance.
When used well, it is a cheap source of funding, the lending price is typically 2-3% over base. With additional fees it typically works out to be less than 10% per annum.
He continues It provides more liquidity than overdrafts, can provide insurance across the sales ledger and reduce your debtor days. If your average debtor days are 70days, reducing them to 30days will pay for the financing – in that context it would pay for itself.
How invoice finance works
The original invoices are sent to the customer(s) and copies to the lender. The originating business will receive up to 95% of the invoice amount, usually within 24 hours. Once the lender is paid by the customer(s), the business will receive the balance minus agreed-upon fees
Two key types of Invoice Finance:
Invoice discounting
The business owner is able to retain complete control of their sales ledger throughout this process and will still be responsible for chasing up invoice payments and engaging with the funding service.
Invoice discounting has become one of the most popular methods used by business owners dealing with delayed payments. Instead of waiting up to 120 days for payment, a business can advance an agreed percentage of each due payment with the remainder paid into their account, minus fees, once the customer settles the outstanding balance.
Invoice factoring
Managing a sales ledger as well as overseeing credit control can be both daunting and costly for the business owner. Invoice factoring takes things one step further than invoice discounting by chasing up all raised invoices on behalf of the company.
The business won’t need to chase an advanced in
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