Commercial Finance and Insurance
Frequently used terms
Asset-based lending (ABL)
Loans are secured against specificcustomer-owned collateral: property and equipment, invoices and inventory being typical examples. Term loans, invoice financing and inventory funding are today’s methods of businesses securing the money they need.
A high-interest, short-term loan primarily used to help complete the purchase of a new property in the event of a delay in completing the sale of an existing one. They can also be used to help buy a property at auctionif the intention is to resell it quickly. There are a variety of types of bridging loan, eg: closed/open, first/second charge, fixed/variable, to meet different circumstances.
Charge (bridging loan)
Loans are categorised as being either ‘first charge’ or ‘second charge’ loans depending on whether you already have a loan, a mortgage for example, secured against the property you intend to use as security. If you don’t,the loan will be classified as a ‘first charge’ loan; if you do,it’ll be classified as being a ‘second charge’ loan.
Closed or open (bridging loan)
A ‘closed’ bridging loan has an ‘exit plan’ which means you’ll know how and when you’ll be repaying the loan. ‘Open’ bridging loans don’t (usually) have an exit plan and are often used as a means to raise finance for an urgent transaction. Although most bridging loans have to be repaid within a year, the lack of an exit plan can offer a time-effective solution.
Corporate legal liability
Insurance that covers an organization in the event of a claim for fraud. If a claim is made against the organization as a result of actions of an employee, corporate legal liability will cover the organization for any subsequent legal action. It also protects against claims made for regulatory violations such as water contamination, passing off (trademark and intellectual property violations) and trespassing.
Director’s and officer’s insurance
Insurance that covers individual directors, business owners and senior management from the financial effect of any alleged wrongdoing. Director’s and officer’s insurance providesprotection from defence and compensation costs and fines and penalties providing the allegation doesn’t relate to intentional breaches, such as fraud.
‘DD’, as it’s often known, is a formal, in-depth review of every aspect of the business and is usually carried out by professionals and experts. The results of due diligence will provide a definitive overview of the business from which an equitable deal can be struck – or it may throw up something that causes the buyer to pull out.
Employer’s liability insurance
This covers an organization for compensation claims resulting from an employee becoming ill or injured. Although there are some exclusions – sole traders, public organizations and companies that employ only family members – employer’s liability insurance is a legal requirement with financial penalties for not having cover.
Employment practice liability
This provides protection against claims made by an organization’s employees. Claims are becoming increasingly commonand the legislation relating to employment law more complex; employment practice liability covers unfair dismissal, sexual harassment and discrimination among many other employment-related issues.
The Enterprise Finance Guarantee (EFG)
The Enterprise Finance Guarantee is a government-guaranteed scheme aimed at helping SMEs to secure finance if they are unable to provide sufficient security for a loan. Although the decision as to whether or not to make the loan rests with the participating finance house, the government meets some of the bad debt cost that may result.
Heads of agreement
A document that shows ‘good intent’ by summarizing the principal elements of what both parties want to achieve into a single, non-legally binding document. Key within the agreement will be a timetable setting out the various actions each party has to complete along with any milestones and deadlines that need to be achieved.
Inventory funding (ABL)
Loans are secured on a ‘revolving basis’ based on the value of raw materials, work in progress and finished goods. This takes into consideration that the loan is being secured against something in a continuous production cycle, ie: the raw materials become work in progress and then finished goods which are sold. In the meantime, more raw materials have been purchased.
Invoice finance (ABL)
This has become a popular method of cash-flow funding in both new and established businesses. Invoice finance involves a business selling the invoices it has issued to its customers to a finance house or specialized agency at a discounted rate. The business receives immediate payment; the agency collects the full invoice value from the customer.
Insurance that covers both the organization as an ‘entity’and the individual people within it for.Because the effects of the decisions can be complex and the legislation around them very specific, management liability policies usually provide three levels of cover:director’s and officer’s insurance,corporate legal liability and employment practice liability.
This is when a ‘property developer’ undertakes a project to build, or refurbish, residential or commercial properties for rental or for sale. The return the developer receives comes when the houses, offices or commercial units are sold or let. It’s important to realize the distinction between ‘development’ and ‘investment’ as the method of financing activity can vary considerably.
This is when an ‘investor’ buys one or more residential or commercial properties, usually for rental but sometimes for resale. Having bought the property, the investor’s return is either the ongoing income from renting it or the profit from selling it. It’s important to realize the distinction between ‘development’ and ‘investment’ as the method of financing activity can vary considerably.
Public liability insurance
Public liability insurance protects your business against compensation claims if you, or someone employed by you and working on behalf of your business, causes injury or death to a third party or damage to their property. It also covers you and your employees when they are on your premises and working off-site, and may cover legal costs that result from defendingclaims made against you and paying compensation if your business is found to be at fault.
Owning the asset
The benefits of owning your own trading premises, rather than renting them, are overwhelming. ‘Owning the asset’ means it can be used as collateral to secure business loans if they are needed, there are no landlord charges and it has a positive effect on the organization’s balance sheet.
Term loans (ABL)
A type of ‘asset-based loan’ in which the loan provider provides a term loan secured against property, plant or machinery. It’s possible to secure loans with a term of up to 20 years against commercial premises.
How can One Financial Solutions help you?
One Financial Solutions is here to help you. We’ll talk to you about what you need and then introduce you to a specialist commercial finance broker who will work with you to secure a financial solution.
The commercial finance brokers we work with are acknowledged experts within the industry and have enviable relationships with a wide range of financial institutions throughout the whole of the market. They offer a complete service and can provide practical advice on all aspects of commercial finance. They can secure working capital, venture funding, development finance, bridging loans and asset-based finance schemes; help with business purchases and sales, including management buy-outs and buy-ins, and advise and assist with all aspects of share capital, proprietor loans, vendor deferment and mezzanine finance. They can also provide a lead role in liaising with all parties in these transactions including the financial institutions involved, accountants, specialized valuers and lawyers, and can write business plans, balance sheets, profit and loss statements and cash flow forecasts to support the proposal.
So, if you’re looking for help securing any type of commercial finance, please call us on 020 3714 9565, or ask us to call you by sending an email to firstname.lastname@example.org.