By Tony Morgan, CEO of Verus360
Recent news that Tesco had intentionally delayed payments to suppliers for over a year highlights a problem many wholesalers are only too familiar with.
The sector’s wafer-thin margins are squeezed by powerful manufacturers and dominant retailers, causing cash flow issues around late payments, as well as incurring hefty banking costs – which are simply not sustainable.
Research has shown that most businesses still go to their banks for a loan – and if they don’t get it, they give up. So where else can they turn? Thankfully, alternative finance (AltFi) may offer the solution for both short- and long-term funding.
AltFi options include online revolving credit facilities, invoice trading, peer-to-peer business lending, crowd-funding and a variety of flexible loans. Whichever you choose, they all tend to be faster and easier to access than finance from the banks, while being more adaptable to customer needs. Many AltFi providers operate entirely online, and some have staff available to talk to you through the process.
In the wholesale sector particularly, AltFi is ideal for accessing short-term capital – whether it’s to help handle unexpected currency fluctuations and increases in transport costs, adapt to sudden changes in customer demands (for example, in the fashion sector) or to repackage/re-palette goods.
Despite its rapid growth in the past few years, just 10% of UK SMEs are currently benefiting from AltFi* due to a lack of awareness among SMEs of its benefits. Indeed, alternative funding sources can often be far more cost-effective than traditional finance.
The true cost of business finance Before you consider borrowing money for your business – be it from your bank or an alternative finance provider – you need to look closely at the cost of the various options available. If you’re already using a facility, then it is worth reviewing exactly what you’re currently paying. If you don’t know, then you’re not alone; research shows that 40% of UK businesses are unsure how much they are paying for finance.
This is no surprise, as business finance in the UK is littered with hidden charges. The headline interest rate may often look tempting – but the true overall cost of the funding is frequently much higher.
Typical extras to look for include:
• an admin fee to set up the facility
• penalties if you go over your agreed limit – even for a day
• a non-utilisation fee if you don’t use the loan – for example, if you need the liquidity, because you don’t want to get to pay day without knowing if you can pay employees or suppliers, but the money does come in on time, you may still be charged for the facility
• minimum usage fee – this can mean that if business isn’t going well (you’re issuing fewer invoices) you’ll still get charged the same amount
• an annual fee to review the facility
• an exit fee if you leave It is these easy-to-overlook costs that make traditional lending so expensive – and why it makes good economic sense to investigate alternative finance.
Solving the problem for wholesalers
When we set up Verus360 in 2014, we spoke to a lot of wholesale businesses to understand the pain points around their borrowing. We heard clearly that the wholesale sector was suffering – particularly around a lack of confirmed orders, constricting sale or return policies and the disintermediation of traditional channels. These challenges, on top of a lending drought and cash flow problems, were putting immense pressure on business owners.
We believe our pay-as-you-use finance solution can take that sense of pain away. Customers have told us that we’ve helped them transform their liquidity, while saving them thousands of pounds in fees.
How Verus360 alternative finance works
To qualify for a loan facility, your business needs to meet the following criteria:
• limited company or PLC registered in England and Wales
• you or your accountant use Sage Line 50, Sage 50 Accounts, Sage 200, QuickBooks Pro (desktop) or Xero to manage your business accounts
• at least 12 months’ accounts data is recorded in your accounting package.
Unlike most loan facilities, Verus360 does not charge set-up, usage or other hidden fees. You only pay interest on the amount you borrow, for the time that you borrow it, and our rates are competitive and transparent, starting from 8% p.a. Our unique process also means that we never require personal guarantees.
How do we do it? We use sophisticated technology to securely access and analyse your financial data. It doesn’t make a difference when you apply, as we take a 12- month, 360° view of your business finances. The application, data analysis and decision process can take under an hour, and the funds can often be in your account within days.
We’re creating a revolution in business finance. Join us by visiting www.verus360.com – or call our friendly team on 020 3691 7010.
*YouGov poll commissioned in June 2015 by Verus360.
Tel: 020 3691 7010