£20,000 recovery finance to help turn around a transport business
As an accountant, you probably deal with clients who face serious challenges, as well as those who need your help to deal with their success. Being able to find solutions is essential. But being able to source the funding your clients need to recover may mean an additional source of revenue for you - along with the ability to provide a vital additional service for your clients.
Of course, helping your clients recover is not only personally and professionally satisfying for you. Keeping a client in business will, ultimately, help you generate more revenue.
We were recently approached by an accountant with a practice based in Ipswich. Their client was a transport business which was facing trading difficulties when one of their largest clients, a vehicle import/export specialist, switched from Felixstowe to Southampton.
“My client had his staff drivers and his transporter fleet standing idle, and was losing £5,000 a month.”
The client was working hard to find new contracts, but his specialist vehicles were limiting the work that he could take on - and keeping up finance payments on vehicles and dealing with large wage bills were eating into his reserves.
When he came to review the figures, the accountant saw that the business was heading for insolvency, and would face problems when the next tax bill was due in two months' time.
“The business itself was very viable, and new contracts might be found if the tendering process went well. But costs were coming in even though loads were not, and the window of opportunity was closing fast.”
The accountant sat down with his client and examined the possibilities. The problem was cashflow - the client was reluctant to let his drivers go and disposing of vehicles would, obviously, be the last resort. A cash injection would be essential if the business was to stay afloat, but if suitable funding could not be found, turning to an insolvency professional might be the only option.
He approached us at Rangewell to provide help.
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How we helped
Business lenders are, understandably, wary of lending to any company which is trading at a loss. However, at Rangewell, we know that lenders do exist who cater for businesses experiencing adverse trade conditions.
Costs will, naturally, be higher than for more conventional propositions, but it may be possible to provide funding to companies who are experiencing financial difficulties if suitable security can be arranged.
However, the position was complicated by the fact that the client was already using his depot as loan security, but we looked at the figures provided by the accountant, and worked with him to see what assets the client could call on. Refinancing vehicles might offer a solution - but we saw that the depot might still provide a way to raise the necessary funds.
We approached the lenders who we knew might take a sympathetic approach, and discussed a second charge bridging loan.
A second charge bridging loan
Bridging loans are, of course, short-term loans used to buy property. However, because they are secured on the property itself, they can also provide a source of funding that can be used for any business purpose.
We found a lender who could provide a loan of £25,000 as a second charge briding loan. Interest rate were high, and administrative and other costs would add up to almost £5000, but the £20,000 remaining would allow the business to deal with the immediate bills and provide working capital for the next few months.
“My client recognised that using the equity in his depot was the best way to keep his business on the road.”
The accountant recommended that his client took the loan. He was able to deal with creditors and ensure that HMRC were paid, while the client found additional work.
A new contract with an Essex-based distributor allowed the business to keep drivers and vehicles fully occupied and, with the accounts showing a business in profit once more, the business owner was able to refinance at a lower rate and pay off the bridging arrangement inside the agreed 12 months.
The accountant was able to provide his client with the support he needed to stay in business - and had also earned a welcome commission from the loan provider.
Does your practice work with businesses in financial difficulties? If you are looking for a solution to help a client recover, you may need specialist help. Simply call us at Rangewell on 020 3637 4150 - or email contact@Rangewell.com. Our service is free.