Blog finance type
The difference between Fixed and Floating Charges
Fixed and floating charges may apply to large-scale borrowing such as debentures - which are, themselves, a type of Secured Loan available, in the main, to large corporate borrowers. At Rangewell we help businesses of all kinds borrow funds from banks, financial institutions and other companies in the form of loans to fulfil their monetary needs - which can be for the short, medium or long term. The lender will require security against the loan and so the borrower creates a charge over the assets or lien on the property. The charge refers to the collateral or security provided by the borrower as security for the debt, and usually takes the form of a lien on the company’s assets - something that will be handed over to the lender if the borrower is unable to repay the debt from their business as planned. This will only happen in a small minority of cases, but the ability to take and sell assets to repay the debt will remove much of the financial risk to the lenders, and enable them to to make an advance at a much lower rate than would otherwise be the case. Two types of charge There are two kinds of charge, which are known as fixed or floating. The former is a charge on a particular asset of the company that is identifiable and agreed when the charge is created. The latter is slightly different, which is created over all the assets of the business and not attached to any definite property. Fixed Charge Fixed Charge is defined as a lien or mortgage created over specific fixed assets like land and buildings or plant and machinery. The most common form of fixed charge is against property, but it can also be secured against the agreed value of intangibles such as trademarks, goodwill, copyright, patents and intellectual property. In this type of arrangement, the lender has full control over the collateral asset. Therefore, if the company wants to sell, transfer or dispose of the asset, then either they need to get the approval of the lender or it has to discharge all the debts first. Are you needing help with funding for your business? Find out more about the types of funding available or apply today With a fixed charge, a lender can ensure it is the first creditor to get repaid any outstanding debt if a borrower defaults on the loan. It grants the lender possession of a borrower’s asset in the event of non-payment, and allows them to sell it to be used to pay off the remaining debt. Floating Charge A floating charge is a lien or mortgage which is not tied to a particular asset of the company - but rather its assets in general. It covers the assets like stock, and the borrower has the right to sell, transfer or dispose off the asset, in the ordinary course of business. The permission of the lender is not required to sell or use an asset and also there is no obligation to pay off the dues first. The ‘floating’ nature of the charge means these assets might change over time, with the borrower able to move or sell any assets during the normal course of business. It’s only when the lender has to enforce the debenture in a default that the floating charge ‘crystallises’ which means it becomes a fixed charge. From that point, the borrower will no longer be able to deal with the assets unless they have permission from the lender. In an insolvency or liquidation, a floating charge will give a lender priority over unsecured creditors when it comes to repayments. It occurs when: a company is about to be wound up. a company ceases to exist a court appoints a receiver. a company defaulted on payment, and the lender has taken action against it to recover the debts. It is possible for a lender – or lenders – to have multiple debentures on the same borrower. These can either be fixed debentures against different specific assets, floating debentures, or a mixture of both. There can also be multiple lenders, and when several lenders have a lien against the same borrower’s assets, the lenders will agree priority of payments between themselves. This is usually documented between the lenders and borrower with a Deed of Priority. Do you need a debenture? Some lenders won't lend above a certain amount without a debenture so, regardless of how much you’re looking to borrow, you may need to provide your assets as security. In this case, an Unsecured Loan might be a better option for your business, although it could mean borrowing less and paying a higher rate of interest. At Rangewell, we know that there are many solutions when you need to raise money for your business. To raise the funding that is most appropriate for your particular needs, simply call us for help. Our team of business finance experts work with you to get to know your business and understand the kind of arrangement and features that are right for you, plus our service is free. So whether you need to finance new assets, or are looking for other products such as secured finance or growth finance, Rangewell can help you support your goals.
What’s the difference between an Overdraft and a Term Loan
If you’re looking to borrow funds for your business, you might be considering a range of funding options. Two of the most popular that are considered by most companies are overdrafts and loans. We explain the differences – and round up the pros and cons of both. Term Loans A loan is simple to define. It is an arrangement that lets you borrow a cash lump sum. You repay it, with added interest, usually with monthly instalments. It is also known as Debt Finance. There are two main types. An Unsecured or Personal Loan is based on your creditworthiness as an individual and on the creditworthiness of your business. Secured Finance, on the other hand, will usually be secured against your property – which means that the lender will have the right to take your property if you do not keep up the loan. These can be less expensive – they have lower interest rates because the risk to the lender is lower. For the same reason, they can also provide much higher sums if required. Short-term loans are typically repaid over one to three years, while long-term loans can usually be paid off over a much longer timeframe - and terms or 10 years or more are not uncommon with secured lending. The arrangements can vary depending on the deal, provider and the amount of money you’ve borrowed. Borrowing can range from tens or hundreds to hundreds of thousands of pounds with Secured Loans, but whatever the sum you want to borrow, it’s important to ensure that you’ll be able to afford to repay the amount and have a plan in place to make your repayments on time. The advantages of a loan They can be arranged fast - some smaller unsecured loans can be arranged in a matter of hours The interest rates tend to be fixed so you’ll know what you’ll be paying each month A good credit history is valuable – but it still may be possible to arrange a loan if your history show problems with repayments in the past Loans can be tailored to particular needs You can choose secured or unsecured options in many cases The disadvantages of a loan The interest on a personal loan can be high if you’re only borrowing a small sum Secured loans can allow you to borrow more, but they are linked to high-value assets such as your property - this means if you are unable to keep up with your repayments, there is a risk you could lose your home Loan repayments are usually less flexible – the criteria is set by the lender, so it’s worth talking to them if you think you won’t be able to make them in time If you want to repay your loan early, there may be an early repayment fee Whatever funding need your business has, you can check your options quickly and for free Overdrafts A traditional agreed overdraft facility allows you to borrow money through your bank's current account up to a certain limit. It is very easy to use once it has been set up – your bank allows you to draw down funds that you don’t have in your current account as though you did. You can repay these funds as soon as you have cash available. You will usually have to pay interest or fees on the money you take out under your overdraft. There may still be a few banks that offer interest or fee-free overdrafts, but these will typically only apply up to a relatively low limit or for a set time. Banks used to offer overdrafts automatically for business banking customers, but many banks no longer offer overdrafts at all or restrict their availability. As a result, Alternative Overdrafts have become more common. With these, no bank account is involved and, instead, there is a line of credit provided by a lender which you may dip into as you require, paying only for the money you draw down and the time in which you borrow it. Overdrafts may give you access to funds of up to £2,000 or so, but how much you can actually draw down will vary depending on both your credit score and your income. Overdrafts have no specific repayment date, but it’s best to try and clear them as soon as possible – particularly if you’re being charged interest. The advantages of an overdraft You have flexible borrowing and repayments, which gives you some freedom to decide how much money you use and repay each month An overdraft tends to be the cheaper option for short-term borrowing, especially if you are you able to access one that doesn’t charge interest It can provide a financial safetynet to help you deal with unexpected costs or take advantage of an opportunity - knowing that the cash you need is ready and waiting Very short-term borrowing - for days or even hours - is simple and cost-effective Disadvantages of using an overdraft The amount of money you can access through your overdraft tends to be lower than with a personal loan Fees and interest charged on overdrafts can be high – especially if you go over your agreed limit – making it an expensive way to arrange funding An overdraft should not be considered as the solution for long-term funding, or for high levels of borrowing because of the costs involved. Getting help with the funds you need At Rangewell, we can provide solutions both for loans and overdraft replacement funding. We can help you decide on the most appropriate type of funding for you and search the entire lending market to find the most competitive rates for you and your business. That means, loan or overdraft, we can help you pay less for the funding you need. To find out more about working with Rangewell to find better answers to your funding needs simply call us. Our service is free.
Success Story: Jerk Chicken Franchise
The client’s challenge Food service is one of the many sectors that Rangewell specialises in. Recently, through our partnership with a catering equipment supplier, the director of a new jerk chicken franchise came to us for needing help with a loan. He had extensive experience in the fast food franchise sector, and now wanted to expand his new business, which provides Caribbean fusion street food. His goal was simple: to open and fit out three new jerk chicken franchise locations as the first stage of his plan to create a nationwide business. For this he needed a part secured loan to pay for equipment for both shops, and an unsecured loan to cover the building fit out costs – £150,000 in total. But with all the demands of opening new locations – finding the right equipment, hiring staff, setting up marketing campaigns – he didn’t have time to look for the best finance options himself. Our solution Because of the director’s previous credit history, we knew it would be difficult to match him with mainstream high street lenders. Although his credit was good now, he had had bad credit in the past, making it harder for him to find business finance. Unlike more traditional asset brokers, Rangewell’s finance specialists were able to find him a variety of alternative lenders willing to work with him. The best offer came from a smaller specialist lender who was eager to work with this growing business, and was able to provide the loan quickly. Within a week of being contacted by the jerk chicken franchise, we helped them secure a £150,000 loan and agreed three tranche drawdowns. Rangewell was able to meet the exact needs of the director, and help him achieve his goal of opening three new jerk chicken franchise locations.