Buying and selling - Reviewing financing options

Faced with an uncertain economic outlook, it comes as no surprise to hear that levels of corporate confidence have fallen. However, over the past few months, we have witnessed only a modest increase in the level of arrears and, overall, corporate liquidity remains satisfactory.

We have also witnessed record deposits into business accounts, with firms keen to conserve cash as they look ahead with a level of caution. Yet, even with relatively sizeable cash deposits, few businesses are ever in a position to fund significant investment from their balance sheets.

The reality is that lending to small to medium-size enterprises remains buoyant and businesses in the broking community considering investment projects will no doubt be reflecting on the range of funding options open to them. The uncertain climate means that it has never been more important to plan ahead comprehensively.

Looking at what many consider the traditional lending route, lenders adopt a flexible approach to business loans and will build a bespoke vehicle to suit the particular requirements of the business in question. With flexibility over interest payments and rates possible in the early years, both parties in the arrangement are able to agree a solution that offers room for manoeuvre. As ever, preparation is key and the terms of any facility will be decided in part upon the strength of the business plan. The scope for businesses to secure more favourable rates should not be underestimated and your business manager will look at the quality of the proposition and the robustness of your plan.

Mortgage financing for premises remains one of the most mainstream vehicles available, however, the much-publicised credit crunch has left many brokers with the impression that the market is all but closed. In fact, Swap rates have fallen in recent months and lenders' rates have been following suit. Rather than assuming that the door is closed, speak to your business manager and make sure to include a business mortgage within the portfolio of options under consideration.

Increasingly, businesses - including brokers - are looking to alternative sources of funding; one of the more popular instruments is asset finance. While the broking sector is not traditionally highly capital intensive, there are certain projects, such as the establishment and operation of fleet commercial vehicles, which do lend themselves to an asset-based financing solution naturally.

Historically, there has been a degree of reticence in refinancing assets in this country. UK business culture is ownership-focused, while in the US, for example, leasing is more commonplace due to the rental-based approach to acquiring assets being adopted more readily.

Finance leases are ideal for businesses that are looking for the immediate use of a new asset with minimal initial financial outlay. The finance lease is a simple approach to lease funding, designed to provide a deferred payment plan on the acquisition of most assets.

Sale and leaseback both allow businesses to free capital and value from existing assets, or to acquire new business-critical assets in a cost-effective manner.

In spite of current market challenges, funding sources are still available for businesses looking to invest or expand. For as long as the turbulence continues - and beyond - be sure that you talk to a funding partner whose track record speaks for itself.

Robin Davies, commercial area director, business development (South and West Wales), Lloyds TSB.