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Steve Cox: Business Advice Column - 08/09/09
Q: I want to extend the size of my commercial premises. What should I think about in relationship to obtaining funding from my bank?
Q: I want to extend the size of my commercial premises. What should I think about in relationship to obtaining funding from my bank?A: Your bank will want to know why you want to extend, whether you have any cash to contribute to the cost and how you will be able to afford the increased loan. They will also want to be sure that the project will increase the value of the building so that the required loan remains secured within an agreed loan to value. If you are expanding to accommodate confirmed orders then this is a positive situation but your lender may want to know that you can afford the increased debt from existing trading profits rather than being reliant on projected increased profits. You will need to make a contribution to the project cost otherwise the bank will be being asked to finance 100 per cent of the build cost. Another consideration will be the impact on your working capital if you expand your business. Growing turnover, and hopefully profit, is a very positive aim but you need to be sure that you have the capital to finance increased stock, work in progress and debtors.
Q: I currently import goods from abroad and I am concerned that I might not be controlling the cost of my purchases against movements in exchange rates.
A: This is a very important consideration and an area of your business that you should consider very carefully. If you are importing goods and your supplier is invoicing you in his local currency you will have to buy that currency to settle the invoice. On the basis that you are selling in sterling, you run the risk that your purchases become more expensive because the exchange rate makes the currency more expensive than you calculated when you priced your sales.
The danger is that you ignore this risk and hope that the exchange rate doesn't cause you a problem. This is a gamble that you can avoid. If you know how much of the foreign currency you will need at a time in the future to settle your purchase invoice, you can fix the exchange rate by agreeing to purchase the currency at a pre agreed rate. This then fixes your cost of purchases, minimises the exchange rate risk and enables you to set your price accordingly.
Q: I have recently agreed to provide a guarantee in favour of my bank with a fellow director and I have heard the term jointly and severally liable. What does this mean?
A: I am sure that your solicitor will explain this to you prior to signing as it is common practice for lenders to ask any guarantor to seek independent legal advice before signing a guarantee. Most guarantees will incorporate a joint and several liability clause. If you sign a joint guarantee with another person for say 20,000, you might expect to be liable for half this amount as your share.
The reality is that because you are jointly and severally liable, the lender could ask you for the whole guarantee amount of 20,000. In reality they would ask you both to settle the guarantee liability but it provides the lender with some degree of protection should one party to the guarantee fail to honour their obligation.
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Sunday 12 February 2012
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