You may have read our piece on HMRC’s move back to Preferential Creditor status, so I will not dwell on this subject matter too much, however with a vaccine in sight it is worth considering the implications of new orders and working capital for many businesses, particularly those in manufacturing which are perhaps hit with a backlog of orders and new orders. Those orders/projects were not lost in 2020, merely delayed or pushed into the future.
Bringing it back to the present, if you have a business that has traditionally operated with an Overdraft or Asset Backed Lending facility(‘ABL’), you will be used to having the facility there just in case of requirement. However, whilst the new Preferential Creditor status of HMRC will not affect the advance made under assets subject to a fixed charge (Trade Debtors for example), it will curtail appetite to advance monies to you against Stock Assets.
You and your business could be in a good place: you have weathered the Covid storm, dealt with the HSE Covid Secure requirements, made sure all your staff wellbeing is a priority, trading performance is positive, but now you have a challenge… how do you meet the increased working capital requirements with a constraint on facilities? And potentially in danger of overtrading.
Luckily, there are a number of debt funders out there who can and are very willing to help owner managed businesses in the scenario presented above. They can either be secured or unsecured, and if the former they are happy to rank behind your existing Bank/ABL facility provider. These usually take the form of term debt facilities that can be flexible around a client’s requirements, in some cases up to eight-year repayment term.
If you are anticipating a big up-tick in trading performance in the new year and an extended working capital requirement, do not wait until the 11th hour before looking for financial support as this may take two – three months to put in place.
The door is always open at Polestar to learn more about what your options could be.
Preferential Creditor status of HMRC will not affect the advance made under assets subject to a fixed charge (Trade Debtors for example), it will curtail appetite to advance monies to you against Stock Assets…..