What is Sub Prime Motor Finance?

In these tough times it is becoming more and more difficult to obtain prime motor finance for people with a less than perfect credit history. A lot of the lenders have increased their scorecard and abandoned their rate for risk practices. This basically means that they have increased the credit score required to get credit approval. Before companies would advertise an attractive headline APR (annual percentage rate) but depending on your credit score they would decide if you would be offered that rate or a less attractive APR (annual percentage rate).

In the sub prime motor finance sector the credit crunch has had damaging effect on the market. As a result of which, several of the major players have ceased trading or no longer approving new business. This has impacted on the mortgage, personal loans, in fact all the sub prime finance markets. It is probably more important than ever to know what your credit rating is and what personal information the credit reference agencies are holding. Once you know this information you can start to address the situation.

The first thing you need to understand is what is a credit score? Some time this is known as credit rating. A credit score is a figure that finance companies and other lending institutions use to make lending decisions. They obtain all this information from credit reference agencies.

The 3 main credit reference agencies used in the UK are Experian, Equifax and Call Credit. These agencies share information with finance companies providing the finance companies share account information with them. Such as if payments are being made on the due date or whether they are late or missed altogether. Credit reference agencies also hold electoral roll information such as county court judgments, bankruptcy and IVAs. They record previous searches information such as the number of times you apply for finance, what name you used and who you applied with. In a nutshell these credit reference agencies provide all the lending institutions with a comprehensive amount of information to enable them to make an informed lending decision. These institutions then set their own score based on that information and the information you supply in your application. There are anomalies however; the credit reference agencies do not share the information with each other. This means that not all information is recorded with all the agencies.

If you do not have any problems getting finance this means you have a good credit score and you are known by the credit industry as a good credit risk or termed as a prime finance customer. If however you do have trouble and have been turned down you are a bad credit risk and are termed as a sub prime customer. This applies if you want to buy a sofa, contract mobile or a car. In fact anything you get declined credit for.

A sub prime motor finance company is a finance company which provides car finance for people who have been turned down previously by the prime finance companies. Although you may want to buy or need a new car you should find out how bad your credit history really is. If your credit history is not really that bad you will still be able to get more favourable rates although a little higher than the mainstream prime finance rates. If on the other you have a bad credit history you still need to find out how bad your credit history really is to enable you to understand why you are regarded as a bad credit risk and therefore being charged at a higher rate. Once you have the all the information you need you should contact a sub prime motor finance specialist with a full range of sub prime motor finance lenders to discuss your individual circumstances in confidence.

Why Do So Few UK Businesses Use Invoice Finance?

Recent figures from the Asset Based Finance Association report that as at September 2009, just 42,983 UK businesses use invoice finance provided via their membership. This represents just 0.73% of the total number of UK businesses currently listed in Dun & Bradstreet’s Marketplace of UK Businesses Database.

In order to try and find out the reasons for this low take up of invoice financing, we commissioned a piece of research that involved telephone interviews with 100 SMEs (Small & Medium Sized Businesses) to better understand their attitudes to invoice finance.

We asked those businesses:

“Why do you think that so few businesses in the UK use invoice finance?”

Research Results

The results were as follows:

41% said due to cost.

31% said that it was not promoted enough and businesses hadn’t heard of it.

18% said it was easier to use overdrafts or loans.

10% said it was due to the bad reputation they associated with using the products.

Those are interesting answers as they demonstrate how poorly promoted these products have been, and how widespread misunderstandings about these products are.

Analysis of Those Results

Taking each response in order, there are some key points that businesses seem to have misunderstood.

41% – Cost

We recently constructed and published a factoring savings calculator that demonstrated how a business could use factoring (a form of invoice finance) and achieve savings that would more than offset any fees incurred and could create a net cost reduction to the business. These savings are made possible through using the outsourced credit control function that comes with factoring and by seeking supplier discounts for cash payments made possible by the cash released from factoring.

31% Not Promoted Enough / Hadn’t Heard Of It

This lack of promotion of these flexible working capital products, by the invoice finance industry, is clearly something that is contributing to the low take up of these products and the lack of understanding about how these facilities work.

18% Easier To Use Overdraft Or Loans

There are several points to consider here.

Firstly, the amount of work required of a client to run some invoice finance facilities is absolutely minimal. There are products on the market that have eradicated the need for reconciliations and technological developments mean that invoices can often by uploaded electronically, and automatically, straight from the client’s sales ledger package. The client can even choose to have cash transferred to their account as it becomes available so they don’t even have to request it.

Even if we assumed that overdrafts were easier to use, there are a number of advantages of invoice finance over overdrafts and loans:

* Overdrafts and loans do not grow in line with growth in business turnover whereas invoice finance does.

* The level of funding released by invoice finance is likely to exceed what can be raised through overdrafts and loans.

* Overdrafts and loans often require a net worth in the business and a profitable trading history whereas invoice finance can be available to loss making businesses even thought they have a negative net worth.

10% Bad Reputation

A small number of respondents felt that using invoice finance could be bad for their reputation if other businesses knew about it. I would argue it could also be good for their reputation, as their cash flow will improve, but taking their concerns on board there are facilities available that are completely confidential. The client’s customers will not be aware that they are using it and this overcomes any concerns they may have.


So in summary, there appears to have been little promotion of invoice finance in the UK and hence little knowledge of invoice finance is evident amongst UK businesses. This together with a great deal of misunderstanding about the facilities that are available under the banner of invoice finance is probably what is currently causing the low level of take up of these flexible forms of working capital finance.

How to Achieve Franchise Financing Success in Canada

Franchise financing is an integral part of the Canadian entrepreneur’s challenge of obtaining and building a success Canadian franchise. As most Canadian business owners quickly discover, franchisors do not provide direct or indirect financing in the Canadian marketplace. This leaves the business owner essentially on his or her own to generate the capital they need from chartered banks, finance firms, and other institutions.

It goes without saying that the budding entrepreneur needs to first make a significant investment in general franchise knowledge – i.e. the pros and cons, as well as of course focusing on financing the franchise.

Franchises in Canada are product and service related. When you purchase the franchise you should have strong level of confidence that the concept is proven and successful, as you will be trying to replicate that success based on the products, services and brand awareness of the franchisor.

Franchisees are encouraged to do a proper level of due diligence based on that availability of information with respect to the business success of the franchisor. If you are considered a franchise that is owned and run by a large well know public company – think McDonalds! You of course have the ability to carefully review the financial statements and management commentary that is available to anyone by virtue of the companies listing on the public stock exchanges.

The good news about franchise financing and the risk that the business entrepreneur takes is that there is a significant amount of disclosure required by law to you as a franchisee. In Canada, as well as the United States you should have the ability to get a copy of the franchisors financial statements. If you don’t feel qualified to read and interpret a financial statement you should use the services of a trusted franchise financing advisor, or even your accountant or lawyer would be good choices.

Many franchisors in Canada will of course gladly give your franchisee references, and you should clearly talk to other franchisees about financial performance with respect to what you hope to achieve based on your personal investment and borrowed funds. When we say ‘ financial performance ‘ we of course mean general business basics such as sales, profits, working capital challenges, leverage ( how much debt do you need to take on ), etc.

In financing a franchise you clearly want to understand how much debt you are going to take on – this is also directly commensurate with what you need to put into the business as your own investment. Most business owners today fully realize that a franchise can never be 100% OPM. OPM= Other Peoples Money!

Our experience in Canadian franchise financing is that the financing of your newly acquired business has is a combination of your own investment, as well as borrowed funds. Franchise financing success in Canada is most commonly achieved by your utilization of the CSBF program, which is one of Canada’s best programs for small and medium sized business. This program provides up to 90% financing of leaseholds and fixed assets. When our firm structures a franchise financing we supplement the CSBF program with a combination, as required, of lease financing, and in some cases a cash term loan if in fact that is required.

In summary, by carefully selecting your franchisor, understanding your overall financial risk, and carefully putting together a financing package that fits your needs, you will have a very strong chance of being successful in your franchise venture.

Financing SR ED – Canadian Working Capital Solutions

Financing SR ED – Not every Canadian business owner and financial manager who takes advantage of this Canadian program (often just called SR ED) program utilizes their capability of financing that claim and ensuring that non-repayable grant is converted into valuable cash flow and working capital.

How does a firm tap into this cash? Funds from a SR ED financing can be used to bolster your working capital, reduce debt, purchase new equipment – in essence to continue to grow and profit your business.

SR ED covers every industry in Canada and Canadian firms continue to generate the SR ED grant based on their research and development work on innovative processes, software, product development, etc.

Many business owners don’t realize that a SR ED claim can be filed for any amount, it is not the domain of the large corporation. In fact large public corporations don’t even qualify for the non repayable cash grant aspect of a SR ED claim. Our firm as worked with and originated financing for SR ED claims as small as $ 30,000 and up to $ 1,500,000.00. The key point to remember here is that there is a cost and time element to the preparation of any SR ED claim, as the claim is usually most successfully prepared by a professional consultant or your firms accounting firm. Many SRED claims are prepared on a contingency basis – this continues to be a popular aspect of SR ED. The claim is prepared and documented with no risk to your firm from a cost perspective, and a portion of the final cash grant goes to the consultant who prepared the claim and invested time and cost in doing that. Clearly that’s a win win for all parties. We would also point out that no one is going to prepare, document and file your SR ED claim for you if they don’t have a strong belief that all, or a significant part of the claim wont be approved.

We always over emphasize to clients that they can use this financing for any general corporate working capital purpose. It is ironic but we often work with firms who have some arrears with CRA (aka ‘Revenue Canada) and the financing is used to offset their tax arrears. Naturally that’s not the optimal use of working capital, but it certainly clears up a serious tax and financial statement problem.

Many Canadian firms are first time claimants. Those claims can of course be financed also – we simply encourage clients to ensure they have filed a valid claim with respect to documenting their research. Companies often ask us how much financing can be derived from a claim. In general the amount is 70% – By that we mean that if your claim is $ 100,000.00 you generally received 70,000.00$ on financing of the claim, and the balance, less financing costs, when the claim is adjudicated and approved.

Timing they say is everything in business, and the only negative aspect of getting your firms cash after filing your claim is waiting for the government to review the claim and send you a cheque. That’s the benefit.

In summary, if you are a Canadian private company, and have filed a SR ED claim, and you wish to finance that claim work with a reputable financing advisor who is experienced in this area. This will maximize your tax credit financing and ensure additional working capital flows back into your firm. It’s a great financial strategy!