Introducing two types of funding in one agreement

November 04, 2015 by Credit4

Introducing two types of funding in one agreement

The success of Alternative Finance can be attributed in large part to the readiness of providers to devise products and services that meet the demands of the modern market.

Thanks to the power of competition, the historic “we’ll tell you what you need” approach to finance by the banks no longer works. Companies like Credit4 are free of historical baggage and don’t have vast structures to service, so can listen to their customers and adapt quickly to their changing requirements and circumstances. It is with this in mind that Credit4 has recently introduced its Dual Growth Funding product – a facility that is 50% term loan and 50% short-term revolving credit facility: effectively two complementary products rolled into one. This is believed to be a ‘first’.

Since Credit4 began offering its original short-term flexible funding facility, which offers sums of between £15,000 and £50,000 for terms of between 3 and 12 months, experience has shown that many companies have a requirement for a slightly larger and longer term flexible funding package that still makes appropriate allowance for irregular cash flow and seasonal trading patterns.

Take, for example, the hypothetical engineering company that receives a large, potentially business-changing order. The order will take several months to complete and to deliver on it, the company needs to upgrade some of its machinery and finance the purchase of extra raw materials. The directors are, however, faced with the twin obstacles of a supplier and a bank reluctant to extend existing credit terms. In the worst circumstances, the engineering company might be forced to turn the business down. The tragedy is that this company is not a bad risk at all and could move on to become highly successful. The right sort of help at the right time could result in a permanent growth, leading to the expansion of the workforce and long term stability.

Similarly, seasonal factors often come into play. Consider the fashion retailer that, after a few years of trading, decides it is time to refit the shop. By the very nature of the business, fashion retailers need to order next season’s collections many months in advance and have to pay designers and manufacturers upfront. As they build up vital stocks, it is common for businesses like these, with unavoidable seasonal variances, to go heavily into the red with their banks. Yet, when the stock is sold a few months later, successful retailers can move into the black within weeks or even days.

The established system often means that opportunities like these are lost and growth is stunted. Now, however, with Dual Growth Funding, these businesses could blend together their need for working capital and a short-term loan, and spread the cost over up to 24 months. The need to make repayments on 50% of the facility is removed until such time as the revenues come in, but, at the same time, there is the reassurance of knowing that headway is being made into the other 50% of the facility such that there won’t be a large and potentially difficult lump-sum repayment to make at the end of the term.

There are many more examples of companies whose trading patterns do not fit conveniently into the norm. The common denominator is that they all need flexible finance that can accommodate the changing requirements or seasonality of a particular type of business. Credit4 hopes to have found a big part of the answer.

If you would like to find out more about flexible growth funding from Credit4, give us a call on 020 3637 0570 or visit our website at www.credit4.co.uk.

 

 

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