6 Jun 2018
Gary Hemming continues his veterinary practice funding series with details about credit facilities and business loans available, and how to choose the correct service for your circumstances.
Gary Hemming
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Image © Sebastian Duda / Adobe Stock
Management of working capital is one of the most important issues for any business. Owners of veterinary practices are no different, and choosing the right products can result in significant savings in interest and charges.
This guide will break down some of the most suitable products for raising capital for your business.
The term “revolving credit facility” covers a number different products – all of which share a common characteristic. The funds borrowed can be drawn down and repaid as and when the borrower chooses.
The most common forms of revolving credit for business owners are the business overdraft and credit card. You are offered a pre-agreed funding limit up front, based on the strength and trading history of your business; this limit cannot be exceeded.
Once agreed, the funds can be drawn down and repaid as many times as needed during the life of the loan. Of course, similar to overdrafts, the facility will sometimes only be partially drawn down or partially repaid.
These products are designed to protect the working capital position of your practice. They provide you with extra working capital to prevent any cash flow problems.
Facilities can be arranged for almost any amount – usually between £1,000 and £500,000.
Business revolving credit facilities usually charge interest daily depending on the balance used that day. This means you are not charged interest when your working capital is strong, assuming you are not using the facility.
Facilities can be arranged quickly, with most applications taking no more than one to two working days to be accepted and set up.
Revolving credit facilities can be set up in a number of different ways, with new and innovative products starting to enter the market.
Whether organised through a credit card, overdraft or a specialist revolving credit facility, the benefits will be very similar. The difference in cost between providers can be huge, with interest rates ranging from 9% to 72% per annum.
Another tool that can be used to raise capital for your veterinary practice is the business cash advance.
Also known as a merchant cash advance, this new and innovative product can be used to raise a lump sum for your business.
These cash advances lend money against your future credit card takings, with repayments made automatically as a set percentage of each card payment received.
Any income taken through sources other than your point of sale card machine will be yours to keep, with no repayments due on them.
This is different to a revolving credit facility as the agreed advance is released in full to your business bank account.
Unlike other forms of business borrowing, instead of paying a set interest rate you repay a set amount. For instance, a £20,000 facility may require a repayment of £24,000.
The overall cost of borrowing is difficult to compare to other products due to the uncertainty of future card receipts and how long the advance will take to repay.
A number of benefits exist to taking out a business cash advance when funding is required – not least the clear cost of borrowing through a set repayment amount.
Business cash advances can be arranged in as little as 24 hours and allow you to borrow anything from £2,500 to £300,000. The amount you can borrow will depend on the financial strength of your business and monthly card receipts.
Unsecured business loans are becoming more accessible, with many lenders entering the market over the past few years. In the past, a bank was the only viable option for a business loan, with the process often difficult and slow.
These loans – whether from your bank, specialist lenders or peer-to-peer platforms – work in a similar way to traditional personal loans for individuals. The money is issued on an unsecured basis, meaning the loan is not secured against property.
Unsecured business loans are popular with business owners and can be used to raise funding for your practice for almost any reason.
Popular uses include the purchase of new equipment, improvements to your building, injecting working capital and funding growth.
Most unsecured business loan providers will only lend to businesses that have been trading for at least 24 months and offer loans from £5,000 to £500,000. Loans are usually issued on a capital repayment basis over a term of six months to five years.
Interest rates can start from as low as 3%, but rates of 8% to 12% per annum are average for veterinary practices.
