Sourcing business ﬁnance can feel overwhelming, as there are so many different options and ﬁrms to choose from. With banks, ﬁnance companies and brokers all offering business ﬁnance, it’s important to choose the best option. PMF spoke to Lee Schoﬁeld, Sales Director at PMD Business Finance, about the different steps you can take to ensure you make the right decision.
“It’s best to avoid the bank for equipment or project finance, as they’re better for more traditional finance, such as overdraft and mortgages. Banks tend to take security that covers all their facilities – normally through a charge on property or a debenture on a company,” explained Lee.
“Asset finance is generally only secured on the equipment, which allows business owners to acquire equipment without overexposing themselves. Most businesses tend to use a blend of bank and asset finance – this allows true flexibility and the most choice for funding,” he continued.
In terms of speed, asset finance facilities (for equipment) can be arranged very quickly. Lee said, “Modest information is required and the answers typically take less than a day. Similarly, loan facilities through specialist loan providers are also quick and easy to access. However, banks can take months to reach a decision and this is precious time that businesses can’t afford to lose when they need to move quickly with a project.”
He added, “You should always beware of ‘umbrella security’, and also beware of the bank-owned asset finance company – banks often take into account your overall exposure with them, and that can include asset finance when looking to sanction new facilities. Businesses shouldn’t be exposed to the whim of the bank manager; it’s a huge risk – although these days the decisions aren’t even taken by those you would meet in a bank, but people in the ‘ivory towers’ at head office.”
Lee advised that, while business owners are typically offered finance by most equipment suppliers, shopping around for different quotes is a sensible idea. “A lot of our clients in the sector arrange a facility before they place an order for equipment,” he said. “They’ll have an idea about the equipment they need, so we’ll arrange a facility for that amount, which allows them to go shopping knowing they already have the finance in place. When they’ve found the right supplier, they introduce us and we arrange the paperwork. It’s very simple. It means the client gets both the best finance deal and the best equipment deal.”
A common misconception is that it is more expensive and potentially more complicated going through a broker. Lee said, “We’re in ‘the age of the broker’ and we can compete against bank owned finance companies on rate, so we’re certainly not more expensive. These days, most funders prefer to use brokers as their outlet because they’re tired of running their own sales teams, so they provide discounted rates to brokers. It’s a more profitable strategy as they don’t have the hassle of running sales departments with associated costs and they only pay commission on deals that come to them, with all other costs being borne by the broker.”
Asset finance and business loans can be provided under one roof by specialist brokers. Lee discussed how PMD Business Finance, one of the largest specialist brokers in the UK, enhances its relationship with clients in the industry.
He explained, “Working with a broker like us is easy – we can deliver relevant facilities quickly, without hassle and at the right price, allowing you to get on with running your business. Unlimited lines are available, meaning you’re never overexposed to one funder, which has ruined some firms in the past. We have access to over 50 funding lines, allowing best pricing, more flexibility and easy access. Some of our funders include mainstream banks and substantial financial institutions.”
Lee continued, “One of our funders has some interesting asset finance initiatives available, such as the enterprise finance guarantee scheme. This scheme allows clients who are less established, slightly ‘weaker’ businesses to access facilities that are generally reserved for solid, wellestablished firms. This is made possible because some of the facility is guaranteed by the government and is a good option for certain businesses.”
“For more established businesses, we can now fund equipment with no deposit and no VAT up front. This means the client is funding the cost, plus VAT, and when they reclaim the VAT on their next return, 20% of the cost price comes back into their cash flow. It’s a great deal because it essentially means you can finance your assets with no deposit and receive the VAT back into your cash flow.”