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100 business financing uk
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Business Financing UK (1)Nature of Business Finance: 100 business financing UK involves financing acquisition/holding of either fixed/long-term assets (such as machinery/equipment/building) or short-term/current/working capital assets like stocks, receivables and/or expenses of running a business during an operational cycle which is the limited period taken for recovery Busin of costs, expenses, charges etc. through sale of goods or services.
(2)Interest Rate:The 100 business financing UK for fixed/long-term assets is in the form a term loan repayable over medium term (e.g. three years) or long-term (such as five/seven/ten years). The rate of interest payable may be either fixed or may vary in alignment with LIBOR (London Inter-bank Offer Rate, which is the rate at which Banks offer to lend funds to other Banks in the inter-bank market).The rate of interest, whether fixed or variable, is a few percentage points (2% or so) in excess of LIBOR. Likewise, the rate of interest applicable to short-term financing which is usually in the form of overdraft or cash credit is also a few percentage points over LIBOR, often higher than the interest rate applicable to long-term loan since the asset outstanding cannot be matched against a specific liability and the Bank has to incur additional planning and arrangement costs in funding the asset. (3) Preconditions for extension of loan/credit facility: It is of utmost importance that the party being extended finance, whether 100 business financing UK or for that matter any other type of finance, enjoys good credit standing/rating. Credit rating is determined on taking into account the borrowers past track record of honouring his commitments (e.g. credit card dues, past loans availed of, supermarket dues etc.) without commission of default. Where the credit rating is not high enough, the rate of interest charged on the loan/credit facility is much higher than for those with good credit rating.
(4)Facility in the form of Trust Receipt: This facility is allowed in the form of payment made to the supplier through extension of credit to the borrower based on trust receipt (T.R.) signed by the borrower upon delivery to the borrower of bill of lading or airway bill or air consignment note covering dispatch of goods to the borrower or merely against delivery receipt signed by the borrower. This facility is treated as a clean/unsecured facility. This facility of T.R. is stipulated to be paid/adjusted within three months.
(5)Facility in the form of letter of credit (L/C) or Bank Guarantee : In certain cases, a business unit can procure stocks for its trade or manufacture only if it establishes a letter of credit in favour of the relative supplier in order that the supplier gets prompt payment from the L/c opening Bank upon dispatch of goods and submission of documents (covering dispatch of the goods) to the said bank in conformity with the terms of the L/c. By opening L/c hence the bank enables the business unit to operate effectively. In certain cases the supplier is prepared to allow credit supplies of goods to a business unit provided a Bank assures payment upon expiry of the term/period of the credit under a letter of credit. Certain business units like those executing contract work are required to furnish to their principals tender money/security deposit/.earnest money deposit or agree to deduction of a certain percentage
before receiving progress payments for executed contract work. All these types of deposits/deductions call for and/or block a business units funds. Bank Guarantees given in lieu of these deposits/deductions enable a business unit to successfully carry out contract work with limited funds and without heavy borrowing. For that matter, even the funds required to commence contract works are provided by Principals (e.g. Government Departments) in the form of mobilization advances provided Bank Guarantees are furnished for due execution of the contracts and eventual adjustments of the mobilization advances out of progress payment bills.
. (6)Security: 100 business financing UK is usually supported by charge over the asset financed, be it fixed asset or short-term/working capital asset. In the case of a fixed asset like building or land or machinery that is embedded to earth or building, the charge has to be in the form of mortgage. Where the finance is against working capital or movable assets like stocks, the charge is in the form of pledge or hypothecation (which is merely creation of interest over the assets and conferment of power upon the bank to take possession of the assets and dispose of or realize the value thereof. Even where the asset is in the form of receivables, the charge is in the form of hypothecation combined with conferment of power to collect/recover the receivables.
(7)Supervision of the loan/credit facility and security thereagainst : A Bank that has lent against security makes it a rule to regularly monitor the maintenance of the security intact and in sufficient value . Thus, the lender regularly makes visits to the place of business to make sure that the assets are in existence as financed or as reported in periodical statements submitted by the borrower in terms of stipulations of the lender. He also verifies the invoices of purchase and sales at random and in respect of major purchase/sales to mmake sure that the values of stocks and receivables are adequate to cover the outstanding debt after taking into the margin to be maintained by the borrower He has to verify that the the stocks are marketable, not being too old or obsolete and similarly that the receivables hypothecated to the bank are genuine, correct andc realizable.
(8)Action upon occurrence of default: Where the mortgage is English mortgage, the relative asset (e.g. land/building) is subject to English mortgage can be taken possession of and auctioned/sold without resort to court action in the event of default in repayment of instalments and interest on the part of the borrower. Similarly, where the assets stand hypothecated, the assets (e.g. stocks, vehicles) are taken possession of and sold/realized to the extent they are available for seizure (though in many cases not many movable assets are available for seizure by the lenders, having been sold/realized and the funds secured thereby having been diverted or having dissipated on account of loss in the business). Usually, where some balance of dues remains outstanding after resorting to enforcement and realization out of the security of the assets charged or where no such security was originally obtained, a recovery agent is appointed to put pressure on the borrower-defaulter and make recovery from him. Though such a recovery agent of a Bank is subject to code of conduct as regards the mode and manner of his putting pressure upon the borrower, it is not uncommon for such a recovery agent to harass and torture the defaulter by telephoning him at odd hours or using foul language or subjecting the defaulter to threats. Other Articles |
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