Business Finance Traps & How To Avoid Them
Sharp practice exists in finance, as in any industry, but finance is complicated, and the “traps” I’m talking about generally arise more by default than design.
Avoid traps or reduce their impact by thinking carefully about best funding structure and, if necessary, paying for flexibility, to reduce risk.
At Start - Accepting inappropriate finance & terms for the business:
Taking fixed sum loan rather than invoice finance facility, restricting borrowing capacity and ability to fund growth
Accepting loans without understanding “loan covenants” restricting dividends even when loans are serviced, and profits are there.
Accepting anything, because you’ve left it late, then finding you’re tied into onerous terms – “Borrow in haste, repent at leisure”
Later - Business circumstances change, and existing funding becomes inappropriate:
Invoice finance taken to fund core business not just debtors, creates a hole if sales dip
Investment pays off late, if this is debt not equity funded, it may create cash flow crisis
Model change from credit to cash sales, get stuck with a long I/F facility or a penalty
Things change, some traps are unavoidable, so:
Start early, explore options, get finance to fit a flexible future
Read and understand agreements including small print
React to change quickly but don’t go from frying pan to fire
Take advice unless you’re certain
To find out more, contact Matthew on 07770 683874 or email firstname.lastname@example.org