Turning a hobby into a business asset: £60,000 funding via sale & leaseback
Cashflow can be a challenge in many sectors - but there are two particular challenges facing the retail sectors.
The internet has taken a growing proportion of shoppers, and fierce price competition from supermarkets mean tight margins that make profits thin.
These tight margins also mean that keeping a positive cashflow can be difficult, even when there is apparently a good turnover and plenty of customers.
We recently helped an offlicence owner raise the funding his business needed with an innovative method.
Many small shops are endangered and many small operators are having to find new business models if they are to remain competitive. Many are seeing the potential in changing to a convenience store format.
Making the changes required to an existing business to help it adopt and stay viable requires investment which, in turn, requires an injection of capital.
Turning to Rangewell for help with funding
We were recently approached by the owner of a small chain of grocery shops, which the owner was determined to refit, improve and operate as convenience stores.
“There is profit to be made if you stay open and offer what people want - from papers and the lottery to alcohol, tobacco and vapes. But to start earning it, I would need to refit the shops with new displays and bring in new lighting - and, of course, a great deal of new stock. The problem was that I had already borrowed to keep my cash flow positive. The bank did not want to lend me any more.”
Naturally, banks set limits on the amount they will lend to a business, and exceeding their tight lending criteria is all too easy. Other lenders do exist who may take a more generous approach, but their lending rates may be substantially higher.
The shop owner had been offered a loan of £7,500 - but at 2.5% per month.
“Things were getting out of hand. I needed the money to make the changes to the business if I was going to keep my head above water, but there seemed to be no affordable way to borrow the money I needed.”
He approached several brokers - including those who specialised in the retail sector. However, after looking at his current borrowing they found that they were unable to secure the funds required. He already had maximised his borrowing on his home and his business premises.
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 the reluctance of traditional lenders was understandable. He needed a new type of funding if he was to raise the £60,000 he needed.
We looked at all his assets and saw an alternative - which could provide the high level of funding he needed - in the form of sale and leaseback of his classic car collection.
Are you looking for a cash injection but finding it difficult to find a lender willing to help? Do you have cash tied up in valuable assets? Find out more about Sale and Leaseback or appyly for funding today
What is Sale and Leaseback?
Sale and leaseback is a transaction in which the owner of a property sells an asset, and then leases it back from the buyer. In this way the transaction functions as a loan, with payments taking the form of rental or lease payments.
The main advantages of sale and leaseback are that it lets businesses release cash from existing items of value - usually items such as equipment, plant and machinery. The cash gained can be used for many purposes, including business acquisitions or simply providing extra working capital.
In the case of our client, as a shop keeper he had no business assets with sufficient value - but we saw that his personal collection of classic cars, which included 15 Mercedes going back to the 1960s, could offer the means to provide the cash he desperately needed.
How we helped
A leaseback agreement can be a long-term arrangement that is used by the seller to raise capital by liquidating an asset (i.e. the property) without giving up the asset itself. We have frequently used leaseback agreements for clients in the aviation industry and those with industrial equipment. We simply approached one of the lenders we know who is active in the field who was prepared to write up an arrangement based on the car collection.
Our client was able to raise the £60,000 he needed to refit his shops, and to pay the monthly charges which will allow him to keep his cars. At some point in the not too distant future, when his shops have returned to full profitability and his other lending is paid down, he will be able to buy back his collection.
At Rangewell, we can help you arrange all types of business funding - and find innovative solutions when other cannot. Call us if you face a funding challenge - we can help you find the answers.