Phil MeekinView Profile
No director wants to be in this situation: A cheque has bounced, or the payroll won’t go through, your business runs out of cash. What do you do?
In the past, the answer was relatively simple – pick up the phone to your bank manager. The banks will still support businesses, but only the strongest and fittest in financial terms, and in the current economic climate, financial security is seldom guaranteed. If the bank is unable or unwilling to help, there were “secondary lenders” who could often support you – but at a cost.
Banks primarily funded secondary lenders; but in the current economy, their funding has disappeared and are considerably less active than in the past. There are still bridging lenders who will provide high-cost, short-term loans. These are usually secured by property, but they will expect around 2% per month. That may be an answer if you need to complete a lucrative contract, and there is enough profit margin to absorb those borrowing costs.
Debtor finance options
The debtor finance industry is very active. What was once considered last-resort lenders have become “mainstream” in the current climate. It is not suited to all sectors or situations; but does fulfil the needs of many companies operating in the business-to-business market, supplying goods and services on credit. It is ideal for expanding businesses as the facilities tend to grow with the level of sales.
If you have tried these sources without success, there are other alternatives rather than letting your creditors wind your company up, and everything collapse. There are various arrangements which a firm of licensed insolvency practitioners can organise. These voluntary arrangements could enable your business not only to survive the insolvent periods but possibly lead to it coming out of things in a stronger and fitter state.
Where the core business is sound, but the company has had its cash depleted because of bad debt, falling sales or other unfortunate circumstances, there may be private investors prepared to get involved, which may include restructuring your company. Alternatively, if the debt has reached such a level that the business can’t continue, you can apply to liquidate the company and close it while providing some return to creditors.
There are few situations worse than when a business runs out of cash. If the banks are unwilling to help you, you can speak to secondary lenders or debtor financers depending on your circumstances. If the business is in an insolvent state, you can contact a licensed insolvency practitioner to arrange an agreement to either rescue or close the company while clearing its liabilities.