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FINANCIAL HEALTHCHECK
Nothing in life is free but an EFG could be the get out of jail free card your business has been looking for. Nigel Adams of Ad Valorem Chartered Certified Accountants explains why.
In the current climate managing cash flow has become extremely important. Business survival may well depend on a tactical approach to cash flow and capital management.
Historically overdrafts have provided useful leeway for the ebb and flow of business funds. The banking crisis and the new legislation governing bank lending (Basel 2) has made this a far more difficult option.
These days you are far more likely to get a favourable response from your bank manager if you ask for a loan rather than an overdraft. This is because they know how much and when repayments will be made.
Whether an overdraft or a loan you will be expected to provide security for any borrowing; this might be an asset, your business premises or even your home.
Problems start when you don’t have any security to put forward and this is where the Enterprise Finance Guarantee (EFG) comes into its own.
EFG is a Government led initiative designed to inject working capital into existing businesses that don’t have security.
You can borrow between £1,000 and £1,000,000 over a three-month to 10-year period. Interest rates can be fixed or variable and you can take the loan in one amount or in stages
to suit your cash flow. You may even take capital repayment holidays.
The government provides a guarantee for 75% of the loan value which means the banks should be able to lend money quickly and competitively.
Your input is threefold:
1)The preparation of a business plan that clearly shows that your business is viable.
2) The ability to service the debt needs to be evidenced by the previous year’s accounts.
3) You pay for this guarantee by paying, to the Department for Business, Enterprise and Regulatory Reform a premium of two per cent of the outstanding balance. This is paid quarterly, in advance, by direct debit.
This is a great scheme, though some banks are easier to approach than others. Absolutely key to the loan application is a sound business plan, budgets and cash flow projections.
If you want help then go to an accountant that specialises in business growth advice and they should be able to help you chose which bank to approach, draw up your business plan and help you make the application.
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