Avoid Company Bankruptcy Liquidation using Business Refinancing

COMPANY DEBT ANALYSER

Avoid Company Bankruptcy (Liquidation) using Business Refinancing

In the midst of an economic downturn, many companies find themselves at risk of failure because they do not have enough cash to maintain their day to day business activities. This may be the case even if there is a strong order book as customers fail to pay invoices on time as they in turn are trying to preserve cash. There is also the increased risk that the customers themselves may stop trading leaving outstanding invoices unpaid.

Unfortunately, one of the reasons for the current recession in the UK is the lack of available funding through traditional routes such as bank loans and commercial mortgages. High Street banking institutions are currently extremely reluctant to lend because of the huge bad debt risks they have exposed themselves to over the past 5-10 years. Faced with this situation, it is not surprising that many businesses are running out of cash and considering bankruptcy and liquidation.

Where a company requires additional working capital (cash) but is not being supported by traditional banking services, there are other funding options which should be considered collectively known as business re-financing. The most significant of these are as follows:

Asset refinancing

Raising finance secured on the value of assets (normally plant and machinery) which are owned by the business.

Invoice financing

Raising finance on the strength of invoices already raised for work carried out. Money is paid up front by the financing company and then collected over time when invoices are paid.

Trade financing

Finance provided to enable a company to fulfil a confirmed order. The finance company will normally pay suppliers directly and in turn invoice the end customer. Once the customer has paid, adhering to the typical payment terms, the finance company releases any profits back to the business.

Business refinancing can make available much needed funding where traditional banking services are unwilling to support the company. Asset refinancing is a particularly useful tool in this regard as the lender is given the added security of the asset against which the finance is raised.

Of course, there are certain elements of the business refinancing process which have to be carefully considered. The main one of these is that personal guarantees will have to be given by the company directors / owners. This is of course no different to a standard business loan. However, the business refinance loan will be based on the availability of real company assets or actual invoices or orders thus reducing the risk of the loan not being paid and guarantees being called into play.

Where a company is facing bankruptcy and liquidation due to a starvation of cash, all possible options to secure the required finance should be considered. Business refinancing may not be suitable for all businesses. Nevertheless, where suitable, it can certainly provide a viable alternative to traditional sources of finance such as bank loans and commercial mortgages.

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