Business Financing

Earlier this year the UK government introduced the Enterprise Finance Guarantee scheme (EFG). The EFG replaced the Small Firms Loan Guarantee Scheme (SFLG) with the commitment to helping small businesses raise the funds they require to trade through the current economic downturn. The EFG is based on the government guaranteeing up to 75% of the value of a commercial loan offered by a company's bank. The company's directors will normally be required to personally guarantee the remaining 25% of the loan.

Companies are still finding it extremely difficult to raise vital finance despite the government claims for the EFG scheme. According to a recent report published by the Department for Business, Innovation and Skills, in the year up until the 3rd April 2009 a total of 2,369 loan guarantees to the value of GBP 178m had been issued, under both the Small Firms Loan Guarantee Scheme and the Enterprise Finance Guarantee scheme. This figure is significantly less than the GBP 205m guaranteed in the previous year. It is also far below the scheme's GBP 360m budget set by the Government in March 2008.

For this financial year the outlook now is just as worrying. The latest Bank of England figures show that new lending to companies continued to contract in May 2009, following a fall in April. Clearly, despite the government's assurances and backing, UK banks remain extremely reluctant to provide new loan facilities for businesses. I have recently had a number of discussions with small business owners which back up this analysis. It seems common place that new loan and commercial mortgage applications with the backing of solid business plans are being consistently declined (often at the last minute) with little or no rational explanation from the lender.

Based on the current evidence it seems very much that the banking system is reluctant to back any business opportunity unless it has almost a cast iron prospect of success. This situation is certainly stifling entrepreneurial activity and thus undermining the driving force required to kick start the economy and move it out of recession.

Given this situation, business owners are well advised to consider alternative options for raising finance. Business refinancing can help in this area. Business refinancing generally involves raising cash secured against tangible business assets thus giving the bank real security and the comfort required to release funds. Examples of business refinancing include:

Asset refinancing

The process of borrowing against the value of any fixed assets which are owned by the business.

Invoice financing

The process of raising money based on a company's outstanding invoices. Invoice financing could allow a company to draw down up to 90% of the invoice value immediately on the issue of a valid invoice.

Trade financing

Enabling a business to receive up to 80% of the confirmed order value up front to pay the suppliers required to fulfil the order.

Until lending eases businesses will struggle to trade out of the current economic situation. However it seems that they are unable to rely on Government initiatives such as the Enterprise Finance Guarantee scheme to allow them to access the funds they need for expansion and growth. Unfortunately Business Refinancing will not be suitable for all. However it is certainly an option that should be reviewed by all in the current climate.

Financial Management

Many people would expect starting a business to be very easy. With a product or service to sell and enough knowledge to market it properly, many people think that they are ready to go. Starting a business, however, takes more than just products or services and simple knowledge. It takes much more if you want to make your business grow.
At the very start of the business, owners or shareholders will instantly be faced with financial matters that require financial decisions. Questions such as what assets to invest in and where to get the cash needed for such investments would require financial know-how. And as the business venture thrives, shareholders have to manage daily finances and make long-term financial decisions. All of this definitely requires more than just a little knowledge in business. It requires knowledge in an entirely different area - the area of financial management.

Defined, financial management is the process of planning financial decisions with the ultimate goal of maximizing the stockholders' wealth. In the world of finance, financial management is also known by other names like corporate finance, business finance, and managerial finance.
While the ultimate goal of financial management is clear "maximizing stockholder's wealth," the path leading to this ultimate goal is paved with other small goals. Goals like day-to-day profitability and properly managing daily finances are generally regarded as short-term goals, and achieving these goals belongs to the realm of short-term financial management. Aside from these, financial management also tackles other long-term goals, including business profitability and viability.
Achieving the goals of financial management, both long term and short term, involves a lot of processes and activities. These usually include cash management, financial risk management, financial accounting, managerial accounting, and others.
Now, these may sound like a multitude of tasks, especially for businessmen who are only managing small businesses. With the many financial management software products available, however, handling all of these tasks may become easier. Alternatively, businessmen may avail themselves of the services of a financial manager or seek the aid of companies providing financial management services.