Business Finance, supported with a legal charge over a guarantors property.

A guarantor who offers a legal charge over their property is a potential means of securing business finance when your company is unable to provide security itself or is suffering financial circumstances that may discourage funders.

When someone agrees to act as a secured guarantor for your company , they commit to covering the repayments and liabilities to the funder if your company fails to keep up those payments or honour it’s obligations to the funder.

Sometimes acting as guarantor is a way for parents (or grandparents) to help their children start a business or buy an existing business.

If we fund a business in this way we will expect any guarantor to be a director and/or shareholder or that they will become a director or shareholder in the business to prove that they are connected and have an interest in the business.

Being a secured guarantor means signing a personal guarantee and also a legal charge on their property securing the liabilities of the company to the funder. The guarantor should take his/her own independent legal advice before agreeing to be a guarantor and before singing a legal charge on their property to ensure that they understand the risks involved should the company not pay and as their home may be repossessed if the company defaults and demand is made for payment under the guarantee.

One of the great benefits of a guarantor for young adults is that it lets the people you’re close to help you start in business or expand your business without having to lend you money themselves. That means that instead of dipping into their rainy-day fund or selling something important to them to help you out, your loved ones can agree to become a guarantor and help you borrow the money you need.

When might a business need to provide a secured guarantee from someone else?

• A business owned by a non-homeowner or someone with very little equity in their property.
• A business with a low income
• A business with bad credit
• Someone looking to buy a business that would ordinarily not have the opportunity to purchase a business as they have no security or collateral.
• Someone that has a business who’s trading performance is not strong
• A young person wanting to start in business
• A start up

Who might be acceptable to a funder as a secured guarantor?

A guarantor generally needs the following:

• To own their own property
• To possess enough equity to satisfy the funder

What happens if my company misses a payment?

Missing a payment is never ideal, but with a secured guarantor it’s particularly important to be aware of what might happen if the payments aren’t met.

If your company falls behind on its finance payments, there are several things that could happen:

• It is given more time to make the payments
• It is charged a late payment and other contractual fees
• The funder asks your guarantor to make the payment on behalf of your company.

If you continue to miss your payments and the finance agreement is terminated, further actions could include:

• Your guarantors house could be repossessed and sold by the funder under the terms of the legal charge.
• A Receiver might be appointed by the funder to receive any income from the guarantor’s property or exercise the funder’s rights under the legal charge which include taking possession of the property and selling it under the powers within the legal charge

Tips for getting a secured guarantor

• Be open about your circumstances. Honesty is important in financial situations, so it’s vital to be open with your guarantor, or with the person you are promising to be guarantor for. All possible outcomes should be considered.
• Use a solicitor. A guarantor is a big commitment and money matters can be complicated. The funder should recommend that you take independent legal advice

At Nationwide Corporate Finance we are excited and are fully supportive of your funding project and will do our very best to help you and approve your funding needs very quickly. However, with all this excitement please do not feel pressured to enter in to an agreement too quickly, take your time and proceed when you are ready especially as you and your friends or relatives will be asked to sign as guarantors and secure the finance against their personal properties so they will ultimately will be liable and those properties may have to be repossessed and sold if your business fails.

Financing Business Acquisition isn’t always as straight forward as it sounds for smaller businesses. Whilst mergers and acquisitions are a popular topic for the media because after all, they make good headlines with big numbers to boot. Its common for articles to quote certain banks or hedge funds are funding the transactions, and make it sound all so simple.

Small Business Acquisition

How tough can it be?

It is never that simple to acquire businesses for the smaller company. The difference is that big business have big budgets to buy in the banks and hedge fund expertise. It can be the case that many large megabucks acquisitions are easier to finance then your bread and butter SME – the market that we serve so well.

Think about how difficult it is to buy a house. A house is a static thing compared to a business which has numerous variables and complexities. Sometimes the smaller the deal is, the harder it can be. This is the core challenge that the SME faces when looking to grow via acquisition.

Why is financing acquisitions tough?

For more SME commercial lenders, they look at a set of criteria when deciding whether to lend. In essence, these criteria are around:

• Track record
• Experience
• Key people
• Repayment ability
• Security

With an acquisition, the SME is required to demonstrate a new level of experience, change the key people, throw the track record in the air and potentially add more costs overnight. The transaction ticks all the wrong boxes and for the majority of traditional lenders can cause them a problem.

As such the small business can find financing an acquisition trickier than it should be.

Financing Options For Acquisition

Use Existing Trading

If your current business trading can support the acquisition funding costs then you could circumvent the lender needing to delve into the performance of the business being acquired.

Because your current level of trading is known and provable under your current management then it provides a way to work around the issues lenders have.

Sometimes lenders still want to look into the new element of the business however it is a lower priority and a lower influence over their decision.

Guideline borrowing

As a guide, a trading business could raise circa 25% of turnover as an amount toward acquisition costs subject to affordability.

Use Personal Funds

This doesn’t mean using a stack of cash from under the bed, it means financing outside of either your current business or the business being acquired. It relies on you providing personal security (typically property) and can work well to enable the acquisition to happen, provide a period of integration and a chance to prove things work.

Once you have proven that the acquisition has happened and a track record exists it becomes easier to refinance and remove your personal security.

The good part about using this route is that it can offer greater flexibility in how the borrowing is structured. This means you could roll up interest for a period to keep outgoings at a minimum, defer the start of repayments or a mix of both.

Use The Balance Sheet

Balance Sheet lending is often something reserved for the larger business with a more diverse balance sheet, it doesn’t have to be though. Even an SME has options on the balance sheet, this can include raising funds against;

• Assets
• Debtors
• Net Worth

Typically raising money against the debtor book is thought to be factoring, again not the case.

You could raise money against a single invoice or single supplier, you could also take a term loan backed by the debtor book. This means that you could raise on the debtor book without destroying future cash flow.

Raising against the net worth of the business is also called ‘Debenture’ lending. The good part here is that lending is based on the balance sheet the usual issues lenders might not apply.

Summary

In each case how things are done depends on many factors, both financial and non-financial. Get the right guidance and make the right choices, but there are options.

Nationwide Corporate Finance can offer various options and we enjoy helping transform businesses. Please call 01234 240155 to find out more or visit https://www.nationwidefinance.co.uk/buy-business-finance-uk/ to apply online.