"I am being asked to convert our overdraft to a fixed term loan by our bank, it seem like they re trying to help me but they want me to sign a personal guarantee and a debenture what is a debenture and what should I do?"


Banks see an overdraft as a temporary assistance to support cash flow. If your business in constantly running into its overdraft the banks automatic monitoring system will identify your borrowing as “core borrowing” or structural. For the bank this is either a genuine cash flow problem caused by the nature of the business model, or poor profitability and insolvency in other words your in trouble. In either case they will not want to provide a long term overdraft and as a result they are incentivised to convert overdrafts to loans (on which the branch manager earn a commission).

If the loan is right for your business and resolves the funding issue then clearly the manager has earned his commission (we like commission as we also get paid this way). However, the loan will also have a debenture requirements and probably require a personal guarantee and for this reason we would recommend you consider what is available in the market place before you sign gratefully for the bank being so generous.

You need to take a long hard and realistic look at what the funding needs are for your business and we would advise you to seek help and advice at this stage which we are happy to provide free of charge. Once we have clearly identified the funding issue we can look at alternatives such as commercial finance such as sales invoice factoring or confidential invoice discounting or even securing external investment.

Commercial funding such as sales invoice factoring (factoring) and confidential invoice discounting (CID) and is an invaluable source of ongoing and long term working capital. Again it is critical to work with a funder that “loves to do business with you” this means they need to understand your business, understand the challenges you confront and can support your goals and aspirations. Factoring or CID sometime gets a bad press with business having varying experiences of how the process works, but in our experience problems only occur when the wrong funder is working with the wrong business. When you match funders and ensure a full support is available to the business commercial funding works really well and can provide the cash to drive growth.

The concept of invoice funding is relatively straight forward in that you have ownership of a sales ledger made up of a sales invoices which for the sake of argument is worth £100,000 if you could get your customers all to pay up immediately. The problem is that these debtors or debt book contains the business working capital and profits and until the invoice is paid our cash is either in the stock room or in our customers bank accounts. Commercial funders simply arrange to pay up to 80% [sometime 100%] of the value of this ledger within 24 hours to you for a fee. So in this case you would receive £80,000 within 24 hours of providing notification and the balance when the client actually pays the invoice. This system of funding works really well for a growing business that needs to fund new orders that are coming in faster than they can collect the cash from old invoices.

The various methods of delivery allow the customer to take advantage of the essential funding with option such as credit control, debt insurance and confidentiality all added in. If you think commercial funding is an option then please give us a call, we can match you with funders who understand your business model and we will ensure the offer is competitive and meets your needs.

Get in touch today and have a chat with one of our friendly experts that are here to help you on 0800 902 0123.



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