Commercial Financing: directory of firms

A term loan is fixed: a known sum, a known repayment schedule, interest on the whole balance. It suits a one-off purchase or a project with a defined end. Its weakness is inflexibility, because repaying early can attract a break cost and borrowing again means a new application.

A revolving facility lets you draw and repay repeatedly, with interest on the drawn balance and often a non-utilisation fee on the rest. It suits uneven cash flow. Its weakness is that availability is usually reviewed periodically and can be reduced.

Invoice finance behaves differently from both, because the amount available rises and falls with sales. That is an advantage in growth and a risk in a downturn: when turnover falls, the facility shrinks at exactly the moment the business needs it most.

Working capital funders underwrite the quality of what secures the facility rather than a single credit score. On an invoice facility they examine debtor concentration, average days to pay, credit notes and dilution, contractual terms such as pay-when-paid clauses, and whether your contracts prohibit assignment of invoices at all.

On asset-based lending an independent audit of the ledger and a valuation of stock and plant normally come before drawdown, and are repeated during the life of the facility. Expect a survey visit, sample verification of invoices with your customers, and access to your accounting system.

Turnaround is faster than commercial mortgage lending but slower than the marketing suggests. Legal documentation, debenture registration and a deed of priority with an existing lender are usually what set the timetable.

Most commercial facilities sit outside FCA conduct rules, because a regulated credit agreement needs an individual or small partnership as borrower, and business-purpose credit over 25,000 pounds is exempt in any case. There is no suitability duty, no standard pre-contract disclosure and no right to withdraw.

Some edges are regulated, and they are easy to miss. Bridging or a second charge secured on a home the borrower or a relative occupies can be a regulated mortgage contract under the 40 per cent test, unless the business-purpose exclusion applies. Any firm arranging those needs mortgage permissions on the Financial Services Register, and any firm broking credit to sole traders needs credit broking permission.

Charges arrive in layers: a service or discount fee, a margin over a reference rate, arrangement and audit fees, minimum usage charges, and fees for each transfer or credit limit. A merchant cash advance is usually quoted as a fixed amount repayable rather than a rate, which makes it look cheaper than an annualised comparison would show.

Ask every funder for the total cost over a realistic twelve months on your own figures, including fees that only bite if you underuse the facility. Then ask what it would cost to exit at month six. Those two numbers make otherwise incomparable offers comparable.

Tell the funder before it finds out. Most reduce availability quietly first, by lowering a concentration limit or disallowing older invoices, and a business that notices this early has options that a business surprised by a formal demand does not.

Get the facility agreement in front of an insolvency-experienced solicitor or licensed insolvency practitioner as soon as a demand looks likely, and take the personal guarantees with you. Directors have duties to creditors once insolvency is a real possibility, and decisions taken in the weeks before a failure can create personal liability.