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Business Loans - Debtor Finance
A market is never saturated with a good product, but it is very quickly saturated with a bad one.
— Henry Ford, Founder of Ford Motor Company
A business requires capital, as a man needs food. There is often a cash-flow gap between paying suppliers / employees and receiving customer receipts. Additional working capital is often required to fund growth or seasonal fluctuations in trade.
For most companies, their outstanding invoices are by far their greatest asset – converting it into cash is much slower rate than they would like.
This is where debtor finance is useful. Some of the benefits of debtor finance include:
- Businesses can have up to 90% of the value of their invoices available for use in the businesses within 24 hours;
- It offers a credit line flexible enough to satisfy historic, projected and seasonal sales volumes;
- Most businesses can utilise balance sheet assets to fund business growth;
- The business keeps complete control over their debtor relationships – managing their customer relationships and performing their own collections; and
- The relationship between the business and the financier is completely confidential and is not disclosed to the business’ customers.
What does Debtor Finance cost?
The interest rate is determined on a risk-based assessment of the client’s business and the quality of their debtors’ book
Rates are generally comparable to prevailing overdraft rates.
How does your product differ from what else is available in the market?
We will consider lending against receivable assets only, with no automatic requirement for property security.
This type of lending allows customers to extend current borrowing or to separate their business from their personal property assets. In addition, we will allow borrowers to influence their own rate of borrowing by increasing or decreasing the ‘loan to value’ ratio up to a 90% advance rate.
How does Debtor Finance compare to other short-term financing options?
Bank overdrafts are the most common form of short term finance for businesses in the Australian market. With overdrafts, banks often require fixed and floating charges over the business’ assets, and property security, as a condition of providing an overdraft facility.
Debtor Finance provides funding based primarily on the value of their outstanding receivables. This means:
- More flexibility – funding is made available in line with sales volumes and facility is negotiated to support sales forecasts – not just historic sales. An overdraft often needs to be renegotiated annually, with this process providing a degree of funding uncertainty.
- More funding – up to 90% of invoice values can be advanced through Receivable Finance. An overdraft facility is likely to be based on a maximum 50% of the existing debtors’ book.
Factoring – Factoring is a lending facility based on the value of the business’ outstanding receivables. However, in the case of factoring, the facility provider actively manages the business’ debtors.
Trade Finance – this is another similar form of finance. However, it usually involves import-export activity and greater number of counterparties and therefore requires greater documentation.
Equipment Finance - this financing which relates directly to the lease or purchase of specific equipment or vehicles for use by the business. See car loans motor finance for light commercial vehicles and leasing options..
Inventory Finance – this is usually suited to smaller retail businesses to fund the purchase of inventory or stock
Designing Business Solution
What businesses are suited to Debtor Finance?
Small and medium enterprises which are registered companies, with an annual turnover of between A$1 million and A$100 million.
They must provide goods or services to other businesses and preferably have a diverse base of revolving debtors.
Our specialist consultants will approach any application with a view to how we can make the deal work.
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