Q. I have just come into some money from a recent inheritance, and wanted to pay off my commercial mortgage. Why must I pay an early repayment charge to do this?

A. When a loan or mortgage is repaid or partly repaid, earlier than expected, lenders will generally charge a fee to cover the overall cost of the customer not keeping the loan for the agreed period. This particularly applies to commercial mortgages with fixed interest rates where the lender has "matched" the fixed rate lending against funds purchased from the money markets, and they may in turn be penalised for breaking the contract. Similarly, with discounted or tracker type mortgages, when the concession is calculated and agreed for your particular case, it is costed against the overall return which the lender would see over the initial longer term. Full details of the repayment charge will be found on the commercial mortgage offer that you received when you originally took out the loan with the lender.

Q. My company has a booming order book, but my bank manager says we are overtrading and will not increase our business overdraft, what can we do?

A. I am surprised that your bank manager has not suggested "Factoring" or "Cash Flow Finance". This is provided by specialist firms, including some subsidiary companies of the main high street banks, and it is directly linked to your business sales activity. The advance is secured by taking a legal charge over your debtors (these are the customers that owe you money in respect of outstanding invoices), and the factor obtains repayment from them through their efficient credit control systems. Most businesses will qualify for a Cash Flow Finance facility if they are selling goods or a service to other businesses on credit terms. The advance can be typically around 70 per cent of the full value of the invoices submitted to the lender. Current business thinking is to match any borrowing to the nature and pay back potential of the asset being funded, Cash Flow Finance provides a sophisticated alternative or indeed an addition to a business overdraft to help fund the working capital of a business.

Q. What is the difference between a Management Buy Out, and a Management Buy In?

A. A Management Buy Out (known as an MBO) occurs when a business is sold to the existing management. This generally arises when large companies seek to dispose of parts of their business or when the overall manager is looking to retire. The existing management team should have a sound knowledge of the company and the workforce and they will be potentially in the best position to take the business forward. Strategically, this is a more desirable option to the existing owner, compared to selling the business to a competitor or simply closing the business down. A Management Buy In (known as an MBI) occurs when an outside management team buys into a running business. This could arise where the business is under performing due to a lack of expertise, or where the growth of the business requires a stronger management team to take the business forward.