Seeing a better way to fund an optician practicePublished on 2nd January 2020 2020-01-02T12:00:00+00:00
£750,000 funding to buy a business
Banks and other lenders tend to be very willing to agree on funding for an established business and to support experienced business owners.
A successful trading record can indicate that the business will be profitable in the future and they are likely to be paid back - but if you have no trading records, they will often refuse to end altogether, or only lend at a very high cost.
However, there are solutions to cut the costs of funding for new businesses and new business owners.
At Rangewell, we can help you find those solutions - and cut the cost of buying your opticians practice.
Our client was an optician who had several years' experience managing a branch of a high street chain.
He had found an opticians shop close to his home that he was confident he could make into a profitable practice. It had a good location close to a town centre, and had plenty of scope for growth - and there were no major competitors nearby. On top of his savings - and loans from family and friends - he had needed to raise £750,000 to buy the business.
Banks can provide the most cost-effective source of funding for many small businesses. However, they have very tight lending criteria to follow.
They were prepared to offer funding to the optician, as they recognised his experience as well as the viability of the practice he was taking over. However, as a new business owner, the rates they imposed were high - and they insisted that he took out an EFG.
What is an EFG?
The Enterprise Finance Guarantee, or EFG scheme, helps smaller businesses that are unable to obtain finance because they fail to meet a lender’s normal security requirements stand a better chance of securing the funding they need.
The EFG is a government-guaranteed service that can help you get commercial funding by providing guarantees for lenders. Under the scheme, the Government undertakes to meet any bad debt costs incurred by the bank or another lender. The borrower pays interest and fees to the lender on normal commercial terms; and in addition, pays a quarterly fee to the Government of 2% of the total loan.
High rates of interest
Our client found that he was paying 3.75% above base rate, which is not unreasonable for a Secured Loan - but, on top of that, he was paying 2% to the government for his EFG facility.
As a result, his total monthly repayments were in the region of £9,000, and his business was being held back because of the drain it presented on his cashflow.
“I knew that if I could get repayments down, I would have much more to invest in the business. I needed new equipment in my consulting room and the shopfront needed a refresh. I knew that Rangewell have a reputation for helping opticians with their business funding needs - so I went to them for help.”
How we helped
One of our specialists in the optician sector conducted a detailed fact find. He immediately saw that there were several opportunities to cut the cost of the optician's finance commitments.
Our client had owned the business for just over a year and, with his first years account in place, it was clear it was profitable. Looking at the increase in value of the property, along with the increased turnover and goodwill, we believed it would be possible to revalue the business.
We set out a plan of action designed to support the application. We called in a specialist optician business valuer who valued the business at around £1.3 million - which allowed a lower loan to value for the outstanding funding. Armed with this, and a revised cash forecast, we used our personal contacts at other Tier One Banks.
We were able to secure the funding to refinance our client's optician business purchase at just 2.2% for an Unsecured Loan.
This was not only 1.55% below his current rate - it allowed the EFG and the 2% additional cost it imposed to be discontinued.
His monthly repayments dropped from around £9,000 to closer to £7,000 - a substantial saving that would allow him to make the investments he needed in his business to take it to the next level.
At Rangewell, we help opticians - and other business owners - with their funding needs.
Our service is independent, fast and absolutely free. To find out more about what we can do for you, simply call us at Rangewell on 020 3637 4150 - or email [email protected]
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