Payday loans for businesses – a new loan product

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The PayDay loan firm Wonga is now offering businesses loans of £3,000-£10,000 available within 30 minutes and repayable over 1 to 52 weeks. Interest rates start at 0.3% per week (approx 17% APR) and go as high as 2% per week (approx 300% APR) while loans will be repaid in weekly instalments. There will also be a variable application fee.

 

To qualify for one of these loans currently, a business must be either a limited liability company or a limited liability partnership, be at least 3 years old and have sales of at least £20,000 per month. Wonga do say however that they hope to broaden these criteria over time.

 

As part of their PayDay Loan business Wonga have developed a complex algorithm that allows them assess the risk of an applicant in a matter of minutes. Now they have extended this procedure to cover businesses business. For individual PayDay loan applicants they say they reject about two-thirds of enquiries so it will be interesting to see how these statistics evolve with these new “payday loans for businesses”.

 

Of course, mention PayDay Loans or Wonga and there is likely to be some quite extreme reactions. This industry, and in particularly this company, have been vilified in the press for the high APR associated with their PayDay Loans. They respond saying that APR is not necessarily a fair yardstick for such short term loans and that they are meeting a demand that is clearly evidenced by popularity of such loans. Indeed, they also point out that were there not a PayDay loan option, many people would be forced into the hands on underground Money Lenders which, as a completely unregulated business, is a far worse option. It is also worth noting that in independent customer surveys, over 80% of their customers say they would recommend them.

 

From our perspective we’ve always held the same view: any extra option of finance to individuals or businesses is always welcome. As with all things though, one needs to make an informed and measured decision. Even those forms of finance perceived as much more benign, such as mortgages or personal loans, can be destructive if utilised imprudently or rashly. This loan product, like others, is suitable for certain borrowers in certain situations and a careful assessment of all finance options is required as it won’t be suitable for everyone.

 

There are, of course, other options. For example, via our connection with Funding Circle, we at Choice Loans can offer businesses with 2 years’ trading history unsecured loans of up to £100,000 over 5 years with no ERCs (Early Repayment Charges). For newer businesses in the B2B space we can arrange factoring deals and for those looking to purchase plant, vehicles or equipment we can also arrange asset finance or lease finance. To discuss any of these options just give one of our Advisers a call on 0845 1260350

Funding Circle Broker event a success

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On May 2nd, the commercial peer-to-peer lender Funding Circle held their first of a series of Broker events they are hosting to boost their profile within that community. This event underlined what we have suspected for some time: peer-to-peer lending is growing and a pending large success story.

 

To recap, the products offered by Funding Circle currently are as follows:

  • Unsecured Commercial Loans: from £5,000 to £100,000. Personal Guarantees from Directors may be required
  • Asset Finance Loans: from £50,000 to £250,000 with a VAT inclusive option also available (meaning an effective LTV of 120%)
  • Secured Loans: from £100,000 to £250,000 secured against the business’s assets but the money can be used for any purpose

 

And it’s also worth noting the basic eligibility criteria:

  • The business must be a Limited company or a LLP
  • The business must have been trading for at least 2 years with 2 years of accounts field at Companies’ House
  • The business must have Directors who are UK residents
  • There can be no outstanding CCJs for more than £250
  • For Unsecured loans a strong Experian Delphi score above 50 is required (3 months average above this level too)
  • Loans cannot be used for any type of property development/construction

 

The event was very successful in imparting to the attendees both the ease at which loans can be processed and how successful some brokers have already been in this regard. I was, for example, surprised to learn the speed at which loans go through: after an initial review of no more than 48 hours a rating is given to the business. It then goes on the ‘live’ marketplace where it remains for 14 days. Here is an interesting fact: so far EVERY deal that Funding Circle have posted on their marketplace has been fully funded within 14 days! In fact, some were even fully funded within a matter of hours!! Once the deal is funded by all the private investors the loan application can be closed and payment of funds happens within 3 days. However, the option remains to leave the deal on the marketplace to see if the rate improves with new investors funding the deal. In either case, this process is far swifter than any bank I’ve ever dealt with and that is surely a majot plus for Funding Circle.

 

It was also interesting to learn some general statistics about the Funding Circle deals and investors. The average Investor has lent £5,000 to 50-60 businesses (helped by the Autobid tool, we were told) in minimum increments of £20. Yes, that’s right! An investor can start to lend to UK SMEs from as little as £20! As for the businesses, the typical business being funded here is 10-13 years old, has 7-14 employees with a typical turnover between £700k-£1.3m – right in the heart of the British SME market!

 

Some attendees questioned how much money Finding Circle have available and if it might “run out” At present it seems this is not a problem and in fact the opposite is the case: they have more money that businesses to fund! This situation might be about to improve further as a proportion of the £100m that George Osborne set aside for alternative investments in UK SMEs in the last budget also looks like it will be flowing thorough Funding Circle’s systems shortly. In addition, they are have also been approached by a major UK Asset Finance firm who want to lend on the platform too. At this rate, and with the continued growth they are enjoying from private investors, lines of funding look very secure for the foreseeable future. I’m not sure all banks can be as confident of this!

 

With all this success it is easy to think Funding Circle may rest on their laurels but we were assure this was not the case. They were actively seeking input from us, the brokers, about what products they should look at next. Mezzanine finance, Property loans and Trade finance were all mentioned by the assembled group so don’t be surprised to see one of these pop up soon.

 

At a time when banks have withdrawn substantially from the market, one can only applaud the efforts for Funding Circle. I was not only struck by the value proposition to the client (attractive rates, speedy process) but I was left with the overall feeling that this is a progressive, professional company that is eager to provide a good service at a keen cost. The very fact they held this event is testimony to how they want to grow by listening to their audience and, again, this is praiseworthy.

 

At Choice Loans we are a registered member of the Funding Circle platform. We can assist clients with their applications and it is worth noting that we do so at no extra cost to the client, were they to go direct to the website themselves. If you are looking for a commercial loan either unsecured or secured or asset finance, do get in touch on 0845 1260350

New Bridging Loan lender in Northern Ireland

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We’re pleased today to be able to add a third Bridging Loan Lender in Northern Ireland to our panel. This means we now have 3 companies that are willing to lend in this region and that’s 3 more than were available at the end of 2011! This increased competition hopefully reflects a growing confidence in the region that will tempt even more Bridging Loan Lenders to once again become involved in lending there.

 

The good news about this new Lender is that compared to our existing Lenders they can offer an increased term (up to 6 months) and for shorter loans they have a more competitive rate of 1.85% per month – previously the best headline Bridging Loan lending rate available in Northern Ireland was 2%. The minimum loan size remains at £50,000 and a maximum of up to £1m is attainable. Offices, retail and residential are all acceptable as security though the borrower’s primary residence is not acceptable as a first charge security but other residential property is.

 

Standard fees of 2% arrangement plus legals and valuation apply but these are the same across most of the industry which means our new Lender is still the most competitive deal we can offer. I’m pleased also to say that this lender will look at non-standard deals and have already displayed a lot of flexibility in their approach to get Bridging Loan deals done.

 

To learn more about our other Bridging loan options in Northern Ireland, please read our (now updated) original post on the topic here http://www.choice-loans.co.uk/blog/2012/02/06/bridging-loans-in-northern-ireland-now-available/

 

If you need a Bridging Loan in Northern Ireland and would like to discuss your options then please get in touch. Either fill in the form on our Bridging Loan page here or give us a call on 0845 1260350

Small business overdrafts: an alternative option

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As Banks reduce and even withdraw overdrafts from clients, we are pleased to be able to offer an alternative. Up to 50% of a business’s sales ledger (to a max of £50,000) is available within a matter of days via a new product from our friends at BFS.

 

Not everyone is aware – or rather they become aware too late – that a bank retains the right to demand repayment of a business overdraft at no notice. This means that overnight your business can be plunged into a cash-flow crisis. For this reason it is wise to not solely reply on a business overdraft to meet your cash flow needs but to have a variety of alternatives in place. As such the Flexidraft product is very useful. Among its features are:

  • It can be arranged quickly, usually taking no more than a matter of days
  • Up to 50% of your Sales ledger (up to a max of £50,000) can be made available to you
  • As the amount available is linked to your Sales Ledger, it can grow and decline in line  with your business cycles

 

What are the charges?

  • There is a £500 set-up fee
  • The amounts borrowed accrue interest at a rate of 1.5% per month
  • There are no minimum fees

 

To set up a Flexidraft facility, please call us here at Choice Loans and we can process your application. To assess your suitability you will be asked for:

  • Your company registration number
  • A summary of your Sales ledger
  • Details of your main Customers/Debtors
  • A copy of your Management Accounts
  • Your most recent Certified Accounts

 

The procedure for setting up this facility are that a Trust account is created in the name of your business and all sales go through it. From here you can transfer money online from the Trust account to your business bank account as required.

 

To apply for a small business overdraft with Flexidraft call us on 0845 1260350 and we can begin your application.

Is it easy to get a personal loan in the UK?

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We recently had a client come to us asking about debt consolidation options and in the course of the answer I realised I was writing a mini Guide to getting finance in the UK so I thought it worth posting in a Blog.

 

Is it easy to get a loan in the UK today? One of the main factors that will decide this or not is whether you are a home owner. If you have a property in the UK, Lenders are willing to bend a little more and there are far more options. Here’s a quick guide to what is out there if you need a loan:

  • The cheapest form of borrowing you can get is via a mortgage (estimated 3-6%). If you’re a home owner then talk to your bank about taking an extension on your mortgage or, if the amount you want to borrow is large enough, remortgaging.
  • For Unsecured borrowing the next cheapest loan option is via Peer-to-peer loans (est 5-8%). This is where you borrow from other private individuals rather than banks. The mechanics of how it works is managed by the Peer-to-peer lender so as far as you are concerned it looks and acts just like a regular loan. Up to £15,000 over 5 years is available with low set up fees, no Early Repayment Charges and very competitive APRs. However, you do have to have a very good credit record to qualify. See our personal loans page for access to the two biggest lenders Zopa and RateSetter http://www.choice-loans.co.uk/personal-loans.php
  • After that the next best rates are from the high street banks and, perhaps surprisingly to some, the supermarkets. There has been a mini price war between a few Lenders trying to gain market share and rates as low as 6.1% are out there but, again, you need a very good credit record and, in the case of Sainsbury’s Bank, a Nectar card!?! To apply for these loans though you need to go direct as they don’t deal through brokers like us. Happy shopping!
  • A further option to reduce monthly outgoings would be to take a Secured Loan. This would be a second charge (second mortgage) on your property. Depending on what your credit rating is and how much of a mortgage you have outstanding on your property (your Loan to Value, LTV) you can get rates from 6.9% and though there are other fees with this, the loan can be extended out over as much as 25 years which would greatly reduce your monthly payments
  • Secured Loans are available up to 75% LTV regardless of credit history and up to £10,000 id available as a second or even third charge regardless of LTV – so there seems to be many options if you are a homeowner.
  • If none of the options above suit then we turn to private lenders and APRs start to rise. We have access to private Lenders starting at 21% APR and short term lenders of small amounts with APRs that go to 148% so while they offer further options, they are not to be entered into lightly. Many of these Lenders still apply a strict credit scoring system so
  • And finally, if your credit record isn’t very good at all the only option available to you may be a Guarantor loan i.e. where a homeowner guarantees your payments. These are at a representative APR of 53.9% and available up to £7,500 but can be a useful tool to help you repair your credit record, as long as you make the payments, of course.

 

How can we sum up all this? Well, if you’re a homeowner and prepared to put a charge on your property then the chances of getting a loan are very good. If you are a Tenant, your credit record needs to be very strong. If you’re a tenant with a poor credit record, I’m afraid to say the market is all but closed to you for a direct loans and you have to look at a Guarantor Loan.

 

At Choice Loans rest assured though that we are always looking for new Lenders to bring to our clients and new lending products. If we can assist you then please call on 0845 1260350 and we can discuss your personal circumstances.

Retirement Mortgage for over 60s but not an Equity Release

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A UK Building Society has for the first time launched a new mortgage aimed at those over 65 that isn’t an Equity Release scheme. It allows eligible applicants borrow up to 50% LTV (max £250,000) over a period up to 25 years and we have access to this limited mortgage product.

 

These are the details of this mortgage:

  • Applicants must be at least 65 years of age to apply. There is no upper age limit
  • Up to 50% LTV is available but there must be at least £150,000 equity remaining in the property on completion
  • The maximum loan amount is £250,000
  • The rate is 5.74% variable
  • Interest Only options are also available
  • Terms of up to 25 years are available but if you repay anytime after the first year there are no Early Repayment Charges
  • Income must be provable (whether earned, pension, rental, investment etc.) and within normal income multiples. Income support from immediate family members can also be considered
  • The applicant must be the owner occupier of the property being offered as security
  • There is a £299 application fee and a £1,495 Lender fee added on completion
  • A standard Legal fees package is available at £370 all inclusive on remortgages (subject to terms and conditions)
  • The minimum applicant age is 65 and family members need to be informed of the mortgage details by solicitors

 

This mortgage product has been specifically designed for those already in retirement but who are still earning an income and to whom the mortgage market had previously been restricted to Equity release. So far the lender has shown great flexibility in terms of acceptable income and LTVs (indeed they originally launched this retirement mortgage at a LTV of 40% but subsequently increased it as demand for the product grew!).

 

Through our affiliation with a regulated mortgage adviser Choice Loans is able to offer this product to our clients. To apply either fill in the mortgage enquiry form on our mortgage page here or call us on 0845 1260350

Factoring as an alternative to Bridging Finance

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For businesses needing to bridge short term finance gaps, Factoring should be considered as a credible alternative to the standard bridging loan.

 

Factoring is a process where your Sales Ledger, Billing and Debt collection procedure are all outsourced to a Factoring company. Such arrangements occur for an extended period and are usually subject to a minimum term of 6 months but often run for much longer due to the benefits they bring to the business owner. This process can be either confidential (invoices still get issued in your company’s name) or disclosed (invoices issued in the name of the factoring company) and is available to any company/partnership/sole trader dealing Business-to-Business and raising invoices with credit terms as long as the company/partnership has an annual turnover of at least £50,000. Factoring is also available to start-ups and Phoenix companies in some situations meaning it is a great source of working capital finance for a company in its formative stages. There are no geographic restrictions meaning such finance is available all across England, Wales, Scotland, Northern Ireland and, indeed, several countries worldwide. Non-recourse Factoring is also an option where an extra fee (approx 0.75% of the value of invoices) is paid to mitigate against bad debts. If a bad debt occurs, the loss is worn by the factoring company, not you.

 

We recently had a client who ran his own construction business. He came to us looking for a £50,000 bridging loan to make payments due at the end of the month. On closer examination of his situation we determined that his cash-flow squeeze was due to some work that had been completed and billed but as credit terms of 60 days had been extended to the client, the money for the work wasn’t due for another 6 weeks. In this instance we recommended the client speak with a Factoring company to alleviate not just this cash-flow squeeze but all such instances that were regularly a part of his billing cycle. Within 10 days the client was set up with the Factoring company, his billing process was outsourced (much to his relief as it meant he no longer had to chase debtors for payment) and he received upfront cash worth 80% of the invoices issued to that point with the balance (less charges as outlined below) due when the bills were settled. More importantly the client also now had a very professional and efficient Billing function working for his company so similar cash-flow squeezes could be avoided in the future.

 

The charges for Factoring vary but due to the fact this client had an annual turnover of almost £2m he paid only a 0.5% service charge and an interest rate on the credit extended equivalent to 6% APR, meaning it was a far cheaper option for him than a Bridging loan and far less inconvenient than having to offer his own personal home as security for this loan.

 

A further option is Invoice Discounting which works on a similar principle but doesn’t require the entire Billing function to be outsourced. For more information on the differences see our Guide to Invoice Finance here.

 

At Choice Loans we can put you in touch with some of the best Factoring companies to provide your business with a consistent and reliable stream of short term funding, helping you negotiate the regular cash-flow squeezes that can occur as part of a normal billing cycle. To find out more either call us on 0845 1260350 or complete our Invoice Discounting/Factoring application form here

Guarantor Loans with Tenants as Guarantors

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A new product has been launched this month which allows a Borrower take a Guarantor loan of up to £1,000 but does not require the Guarantor to be a Home Owner. This is the first Guarantor loan product in the UK since the credit crisis began that foregoes the need for the Guarantor to be a home owner and allows the guarantee to be based solely on the Guarantor’s credit rating. Representative APRs for the loans will be at 53.8%

 

Up until now the existing Guarantor Loan products in the market allow up to £5,000 to be borrowed but required the Guarantor to be aged 25-72, live and own a home in Great Britain and be of sound credit standing. This requirement for the Guarantor to be a Home Owner is what has scuppered many loan applications previously and there was simply no option for a Borrower to use a tenanted Guarantor. Though the maximum loan amount is capped at £1,000 this new loan product will allow Borrowers leverage off the good credit standing of other family members, friends or work colleagues to get credit themselves and in making their repayment, rebuild their own credit record. It is another step in the ‘normalisation’ of the lending market and is to be welcomed as it opens the option of credit to a new raft of previously disenfranchised Borrowers.

 

To apply for a £1,000 Guarantor Loan using a Tenant as a Guarantor (or a loan of up to £5,000 using a Home Owner as a Guarantor), please go to our simple Guarantor Loan application form here http://www.choice-loans.co.uk/guarantor-loan.php

New Debt Management guidance from the OFT

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The OFT has published new guidance as to the standards it expects from businesses offering debt management advice or credit repair services to the public. Specifically they have issued example of “unfair or improper practises” which if a businesses is found to be engaging in them could lead to them losing their Consumer Credit License.

 

The practices that they consider to be “unfair or improper” include:

  • Sending unsolicited texts or email messages
  • Providing inappropriate financial incentives to staff offering Debt Management Services which may encourage them to promote the wrong products for their own financial gain
  • Making false or misleading statements about the status of their business, for example, giving the impression from websites that they operate as a charity or government body

 

There is also a requirement on businesses to refer consumers to ‘not-for-profit’ advisory services in certain circumstances and to have measures in place to deal with those who may be most vulnerable such as the elderly or those of limited mental capacity.

 

This latest guidance is a follow on from the review of the sector conducted in 2010 which revealed widespread concerns with the advertising and marketing practises of the industry and the calibre of advice given. David Fisher, Director of the OFT’s Consumer Credit Group, said:

 

‘This new guidance clearly sets out the standards we expect from debt management businesses. All too often it may be particularly vulnerable consumers who fall victim to poor quality debt advice and we will continue to take action against businesses that fail to follow our guidance.’

 

While this extra guidance and any measure to improve standards in the industry has to be welcomed we do also note with concern that it appears to be proving a little difficult to implement. We are aware, for example, the the process of getting a Consumer Credit License has become much more arduous to the point where the system seems to be seizing up. One firm that applied last October 2011 to extend their CCL from Category C to also include Categories D & E (those required for firms handling Debt Management Services enquiries) were recently told that the process may take until February 2014 to resolve!

 

While the industry has had some poor performers let it down and the OFT are right to take a considered view in issuing licenses, the fact remains that those who perform well in this industry do provide a good service and to prevent others from joining the market on what appears to be a ‘guilty until proven innocent’ will not serve the public or the industry well in the long run. We do hope the OFT gets to grips with these new guidelines again as soon as possible, speeds up the CCL issuing process and the market can return to more efficient service-oriented operation.

Banks cut LTVs on Interest Only mortgages

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We’ve seen before how a trend can spread in banking. Just last month we noted that the rise in SVRs from RBS & HBoS could lead to others following suit and, sure enough, before too long we saw Bank of Ireland wade in with a 1.5% SVR rise and others are also due to follow suit soon. It seems that once one Lender can make a change like this that detrimentally affects the lending market and survive the negative PR that goes with it, it makes it easier for theirs to follow as it is by then “old news” and doesn’t get as much publicity.

 

We are therefore keenly watching the latest trends in the Interest Only mortgage market. It came as a bit of a shock last month to learn that Santander had decided to lower the LTV it accepts on new Interest Only mortgages from 75% to 50% – quite a dramatic move – and they were quickly followed in this by Leeds BS, Yorkshire Bank and Halifax. Now today we learn that Nationwide, the UK’s biggest mutual lender, have also decided to cut theirs to the same level. Once again we find ourselves thinking this is the beginning of a trend and it does perhaps bode poorly for choice in the mortgage market.

 

Indeed, this is not even idle speculation on our part that Nationwide are following a trend as they even announced the move was “in response to changes made by other Lenders” so the motive is quite clear. As a result we expect to see many more Lenders follow suit.

 

The Interest Only mortgage has long been under threat. From the Endowment mis-selling scandals of the 1990s where people were poorly advised about providing to repay Interest Only mortgages through to the more recent credit crunch and associated house price fall, there have always been questions about the prudence of such lending. It has always been a favourite of the Buy to Let market in the UK with the view being that the rise in property prices would more that meet the principal repayment when it fell due. Now we all know differently about this logic so perhaps these latest moves are actually a step forward as they advance the cause of responsible lending and that can only be good for the banks and ergo the economy in the long run.

 

Whatever your view, the trend doe now seem to be in place. If you are looking for an Interest Only mortgage it seems one would be well advised to get the application in early because, as they say about all the best sales, when they’re gone, they’re gone.

 

At Choice Loans we can refer you to one of our panel of Mortgage experts who can advise you on your options. Either complete the application for on our Mortgage page here or call us on 0845 1260350