£55,000 funding - with no need to make repaymentPublished on 3rd October 2019 2019-10-03T16:32:55+00:00 - Last update on 24th October 2019 2019-10-24T09:11:37+00:00
Cashflow can be a challenge in many sectors - but particularly in retail. Here, tight margins mean that keeping a positive cashflow can be difficult, even when there is apparently a healthy turnover and plenty of customers coming in.
In some retail sectors the internet has taken a growing proportion of the business and in others, such as the licensed trade, fierce price competition from supermarkets means that profits can be hard to secure - and events, such as good weather or a major sporting fixture, can spell the difference between profit and loss.
We recently helped an off-licence owner raise the funding his business urgently needed with an innovative method.
It is a solution which could provide a lifeline for many businesses in the sector - and it can provide owners the cash they need to invest in the business, with no need to budget for - or indeed make - any repayments.
Challenges within the sector
The traditional off-licence is endangered. Alcohol sales may be falling, and the economic power of supermarkets makes it difficult for small operators to compete on price. Small operators have to find new business models if they are to remain competitive.
However, making the changes required to stay viable requires investment, which, in turn, requires an injection of capital. But when banks started to reduce their lending to SMEs following the recession, off-licences found themselves regarded as a ‘high risk’ sector.
The decline in bank lending helped create a host of new lenders who were able to support small independent traders - and some will be willing to lend when more traditional lenders may not. However, tight margins mean that profits are small, and there is little spare cash left over to deal with loan repayments.
Turning to Rangewell for help with funding
We were recently approached by an off-licence which had an apparently excellent turnover of £1,800,000 each year, but which, because of tight margins, was facing continuous cashflow worries. The owner had first arranged an Unsecured Loan of £7,500 to help tide him over - but at 2.5% per month, the repayments were making his cashflow problems even worse.
He approached a number of brokers - including those who specialised in the licensed trade. After initial enthusiasm, they found that were unable to secure the funds required when they looked at the company’s accounts and his existing loan commitments.
He called us at Rangewell for a solution.
We always work closely with our clients, and we looked at his accounts with him. We saw that turnover was highly seasonal and that it really could mean problems for the affordability of traditional loan repayments. Therefore, the reluctance of traditional lenders was understandable.
We were able to find a lender who could offer a Secured Loan of £25,000 for 7%. This might have provided a short-term solution, but it might still mean our client would need to borrow again in a year or two.
Fortunately, we knew there was an alternative - which could provide a high level of funding, without a commitment to high repayments.
A Merchant Cash Advance
Although the need to make fixed monthly repayments might present problems with a traditional loan, a Merchant Cash Advance, or MCA, could provide a solution.
An MCA can provide funds without the need to make regular repayments - or indeed repayments of any kind.
They can be ideal for any business that receives a high proportion of its takings from card payments.
The lender works with the card payment processing company, and can provide a cash advance equal to the monthly card takings of a business. The lender then takes a set percentage of every card transaction the business takes until the cash advance, and their fee, is paid off.
The advance is then paid back automatically as customers make card payments. With many conventional lenders still reluctant to lend, it can provide a simple way for businesses, and especially those in the licensed sector, to raise the funds they need - there are no fixed monthly payments and the sum taken will keep pace with your cashflow.
It means your customers repay your cash advance for you - and the more business you do and the more customers pay by card, the faster the advance is paid off.
How we helped
Our client was taking an increasing proportion of payments by card, which made it simple to provide an advance of £55,000. It meant that he could pay off debts, and have a reserve to call on when cashflow was causing problems.
There are a growing number of lenders providing MCAs, and their fees and the percentages they take to fund repayment will differ. Getting the most appropriate agreement for your business and circumstances can be essential to keep costs down.
We found the MCA provider who could offer the most attractive fee structures, and helped our client make the necessary arrangements - which brought the funds in a matter of days.
At Rangewell, we can help you arrange all types of business funding - including MCA arrangements. Call us if you face a funding challenge - we can help you find the answers.
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