05_-_Small_Business_without_Debt

7 sources of venture capital under 250000 do you have

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ecoverable. 7 Sources of Venture Capital under £250,000 Do You Have Adequate Security? The amount a lender is willing to advance will depend not only on your business' ability to service the debt from its profits but also on what security you are able to offer for the bank to minimise its risk in the event of a default. Banks are unable to advance the full market value of security. The amount that they will advance depends on the type of security that is offered. For example, the Table opposite gives very approximate guidance on the borrowing that various assets will support. These figures will, of course, depend on the quality of the assets concerned The figures for borrowing are smaller because of the impact on asset values of the forced sale that takes place when a lender calls in its security. Remember that if you pledge an asset as security and the business fails, the asset is at risk. This may include the family home. If you are asked to provide the equity in your home as collateral, you should consider venture capital as an alternative. What Is The Purpose Of The Finance? The purpose of the finance will have an impact on the most suitable financing package. Assets and the funds which finance them should generally be matched, so that long term assets such as land and buildings are financed out of long term funds such as equity, long term loans or lease/HP finance. Stock on the other hand may be financed by way of an overdraft. This is because you should be able to convert stock into cash fairly quickly in order to pay off an overdraft, which is repayable on demand, should the need arise. Also, levels of stock and debtors can fluctuate. Therefore, they need to be financed by funds that can also vary, such as an overdraft or a factoring arrangement. Asset % of asset value that can be borrowed Freehold land & buildings 70% Long leasehold 60% Plant and machinery: - spet: - non-spet: Debtors Stock 5-10% 100% finance can be obtained by leasing but the APR may be more 30% 100% finance can be obtained by leasing but the APR may be more 30-50% 25% Depending on age and quality Depending on age and quality and the significance of any retention of title clauses. Raw material will be worth more than part processed stock but may be subject to retention of title Are There Tax Or Other Reasons To Lease? The chief differences between an HP and a leasing arrangement are legal technicalities. With an HP arrangement, the person hiring the goods is deemed to own them, whereas with a leasing agreement the lessor retains ownership of the goods. The chief practical importance of this distinction is in the tax treatment of the costs of the assets and the rentals payable. Sometimes a lessor can afford to accept lower rentals on a lease because of favourable tax treatment. You should take advice if you are considering making a substantial purchase financed by HP or lease. Remember, although tax considerations are clearly important they are only one aspect and it is important: "not to let the tax tail wag the commercial d...
View Full Document

Ask a homework question - tutors are online