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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.
The differences between Secured and Unsecured Loans
Whatever your business, you're likely to need external finance sooner or later. Perhaps you want to invest in your business’s growth, or deal with unexpected costs. Perhaps you need to buy in stock, or simply need to keep afloat while you are waiting to be paid. But getting the most appropriate kind of funding is important. There are many types of business funding but if you are looking at a straightforward Term Loan – also known as Debt Finance – there are two types to consider: Secured and Unsecured Loans. With both you agree a loan deal with a provider, who will need to be paid back, with interest, over a set period with monthly repayments. Both have their uses, their advantages and disadvantages, and it is important to get the most appropriate kind of loan for your particular needs. Unsecured Loans Lenders make their decisions based on the risk that they might not get their money back. The higher the risk, the higher rate you will pay, and if the risk is too high they won’t lend at all. With an Unsecured Loan, the lender will make a judgement on whether or not to lend based on the creditworthiness of the borrower and their business. The risks to the lender that they will not be repaid are relatively high with this type of lending, so the interest charged will also be high, and the amount they will lend may be limited. An Unsecured business loan works much like a personal loan. You make an application and, if accepted, a lump sum is paid into your business’s bank account. Interest is charged on the outstanding amount of the loan at a fixed or variable rate, and the lender may charge an arrangement fee which will be added to the repayments. The loan is repaid in monthly or quarterly instalments over an agreed term, usually under 5 years. The advantages of Unsecured Loans Unsecured business loans can be simple and fast to arrange. Lenders can check your online credit score and make a judgement accordingly. Some online lenders will actually make an instant decision, although the amounts offered in this way will tend to be small. The disadvantages of Unsecured Loans The main disadvantage of Unsecured Business Finance is the lack of security for the lender. To compensate for this greater risk they are usually more expensive than a Secured Loan. The lending criteria are also stricter with Unsecured Loans than with Secured Loans. This means that there is a limit to what you can borrow. In most cases, the lender will check your company’s underlying financial health a process known as underwriting, and request various types of documentary evidence from you. Modern lenders can provide a fast service for unsecured lending, but you might expect to have to answer more questions, and possibly to provide more documents in support of your application. The lender will look at: Turnover, revenue and profitability Trading history Forecasts and business plans Your clients/customers You may need to provide a personal guarantee to secure an unsecured loan. A personal guarantee means you as the business owner/ director will become personally liable to repay a loan if the business fails to pay. Companies with more than one director might need a personal guarantee from them all. Looking for business finance but unsure which way to turn? Find out more about applying for business loans Secured Loans Secured Loans are often used to borrow large sums of money, often more than £250,000. They are ‘secured’ because to arrange them, the lender will require something as security in case you cannot pay the loan back. You give the lender a ‘charge’ over your security. This could your home or your business premises if you own them. They’ll have the legal authority to take the asset and sell it if you can’t make the agreed repayments. Secured Loans are less risky for lenders, which is why they normally cost less in the long-run than Unsecured Loans - often known as a low cost secured business loan. But they mean more risk for you as a borrower because your loan provider can repossess your property if you do not keep up repayments. The lender will look at the assets you want to use and make a valuation or inspection. They’ll also check to see if there are any charges already on it. If you want to use your premises as security, it will be worth more to the lender if you own it outright rather than have a large mortgage already on it. Of course, lenders favour ‘unencumbered’ assets. Once the security has been valued and your loan amount and repayment structure agreed, you’ll give the lender a ‘charge’ over your security. This means they’ll have legal authority to take the asset if you can’t make the agreed repayments. Remember, you can only borrow an amount less than the value of the security you provide. So you can get a £200,000 loan with security worth £100,000. Loans are usually 50–70% of overall asset value. Assets used as security can include: Commercial property: offices, shops, warehouses and factories Commercial vehicles: trucks, vans, cars Heavy machinery: capstan lathes, CNC milling machines, printing presses These are all 'hard assets’. In some cases, lenders will accept ‘soft assets’ such as your unsold stock or even your intellectual assets. Advantages of a Secured Loan You can have longer to repay, and enjoy lower interest rates, meaning monthly repayments can be lower and easier to fit in with your cashflow. Secured Finance can cut the cost of borrowing, and can help you borrow larger sums of money than other types of lending Lenders may insist on Secured Loans for borrowers with an imperfect credit history, as they know the amount can be repaid. Disadvantages of a Secured Loan If your business doesn’t generate enough cash to meet Secured Loan repayments and you fall behind with loan repayments, the lender can take your security. Requires valuations and legal costs, which you may have to pay for upfront. These due diligence processes mean it takes more time to get the funds. Why you need Rangewell to arrange your business loans There are many lenders, ranging from high street banks and the new generation of challenger banks to specialist, niche and P2P providers. The rates and terms they offer can vary substantially, and some like to specialise in certain business sectors, where they have more experience of the risks and opportunities involved. Secured or unsecured, finding the right business finance lender is essential to minimise your costs. At Rangewell, we work with lenders across the entire UK market, and can search every lending product to help you find the most appropriate lender and the most competitive deal. Our team of experts can help you find the most appropriate kind of finance arrangement, the lenders who work in your sector, and the most competitive deals. To find out more about working with Rangewell to find better answers to your borrowing needs, call us or apply today.
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.
The difference between loans and debentures
Business finance can seem like a complicated landscape, especially when it comes to industry-specific terms such as debentures, unless you have the right support to decode the jargon. A debenture is a type of loan, but not all loans are debentures. Both are ways for a business to raise money from outside sources, but they operate in rather different ways - and, just to make things more complicated still, the ways these terms are used is different on both sides of the Atlantic. In both the US and the UK, a business loan is a loan, a sum of money which is provided by a lender and which will be repaid, with interest, by the borrower - and usually over a set term (or time period) in monthly instalments. There are essentially two types of business loan. With an Unsecured Loan, the borrower undertakes to make the repayments, and the lender will make a judgement on whether or not to lend based on their creditworthiness. The risks to the lender that they will not be repaid are relatively high, which means that the interest charged will also be high and the amount that will be lent may be limited. A Secured Business Loan can cost less because the risk to the lender is smaller. This is because the loan is secured on something of value. Secured in this case means that the borrower will need to put forward something as security - something that the lender will take and sell to recover their losses if the borrower does not keep up with the loan repayments. When you take out a mortgage to buy a home or a Commercial Mortgage to buy a factory, the property itself is securing the loan. Business loans are often secured on the borrower's business premises or their home. Transferring the risk to the borrower in this way allows the interest charged by the lender to be considerably smaller than with Unsecured Finance, and to offer larger sums. At Rangewell, we frequently help arrange Secured Finance in the £multi-million region. All that is required is sufficient security - the value of the security provided must be greater than the value of the loan provided. So, for example, a £750,000 house could not be used as security for a £1 million loan - but it would be perfectly acceptable for a loan of £500,000. What about debentures? In the United States, a debenture is a loan that is backed by the full faith and credit of the issuer. This means that, in the US at least, a debenture is a type of Unsecured Loan, with the high creditworthiness of the borrower prompting the lender to make the loan. So for example, if Apple or Exxon Mobile decided to borrow, their credit is so good that any commercial bank would be happy to underwrite a loan. Technically, it is an unsecured corporate bond that companies can issue as a means of raising capital. These instruments are, therefore, similar to what would be called a large-scale Unsecured Loan in the UK although, in practice, they would be relatively rare in British lending markets. However, in Great Britain a debenture is a long-term security backed by specific assets. Debentures allow UK lenders to secure loans against borrowers’ assets, and are the document that grants lenders a charge over a borrower’s assets, providing a means of collecting debt if the borrower defaults. Debentures are commonly used by traditional lenders, such as banks, when providing high-value funding to larger companies. To register a debenture, a lender simply has to file it with Companies House. This can usually be done in a matter of days. So while a US debenture is an Unsecured Loan, in the UK it is a Secured Loan. With a Fixed Charge Debenture, a lender can ensure it is the first creditor to recoup any debt if a borrower defaults. In essence, it grants the lender possession and ownership of a borrower’s asset in the event of non-payment, with any subsequent sale being used to pay off the remaining debt. The most common form of fixed charge is against property. With a fixed charge, the borrower would not be able to sell the asset without the lender’s permission, and the proceeds would usually go to the lender or towards a new asset, which the lender then places a fixed charge over. A Floating Charge Debenture is slightly different, and can be attached to all of a company’s assets, or specific classes of asset, including stock, raw materials, debtors, vehicles, fixtures and fittings, cash, and even intellectual property. It’s only when the lender enforces the debenture that the floating charge ‘crystallises’ and effectively becomes a fixed charge. In an insolvency or liquidation, a floating charge will give a lender priority over unsecured creditors when it comes to the allocation of repayments. It is possible for a lender – or lenders – to have multiple debentures on the same borrower. At Rangewell, we know that there are many solutions when you need to raise money for your business and that loans and debentures only represent some of the solutions available. To raise the funding that you need for your business, simply call us. Our team of business finance experts work with you to get to know your business and understand the kind of arrangement and features that make sense for you.
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.
Finance Guide: Secured Loans
Secured Loans: an overview A secured loan product enables a lender to lend money to a business for any business purpose, as long as the borrower pledges an asset as security – otherwise known as collateral – against the debt. Secured loans can be used for a wide range of purposes including growth finance, purchasing assets or simply general working capital and cash flow requirements. This type of product provides an opportunity for businesses to raise funding if they have not been successful elsewhere, however, as well as being suitable for businesses with a challenging credit profile or new start-ups, this product also provides established businesses with a very quick route to raising finance. Because this type of financing is secured against specified assets, it can often be a very cost effective form of financing. The underwriting procedure is not based purely on credit scoring at the company level, as each individual application is considered on its own merits and the value of the pledged collateral or security. Secured business loans can range from £25k to £3m. They can be secured against assets such as existing stock, equipment or vehicles, or residential or commercial property via a first, second or third charge, with repayment terms from three months to ten years. The repayment terms are very flexible and can incorporate seasonal payments and payment holidays. Due to the strong nature of the security of these types of agreements the turnaround is very quick with a proposal turnaround time of 2 to 3 days and a completion target of 4 to 6 weeks. Making sure you have the right finance for your business is complex and can often be confusing. There are so many options that can seem very similar, but which when reviewed closely can be very different in terms of monthly payments, overall costs, up-front fees and terms and conditions. If you’d like to talk to one of our Business Finance Specialists: Call us on 020 3637 2455 Or email us on [email protected]