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• 05 Feb

  Finance You Can Keep Forever

  You have to pay a loan back. Whether its a crowdfunding loan, or a bank loan, the principle is the same, you make a number of repayments over time which repay the capital that you borrowed and some form of margin, so that they lender makes a return. There are alternatives where you don't have to pay down the finance - you can effectively keep it.

  It is often overlooked that forms of funding such as factoring and invoice discounting can offer you a perpetual source of finance, that you can effectively keep forever - providing your business has a constant sales ledger, with constant ageing. The key to this is that it is a revolving form of finance. When you start using say factoring, you will have a sales ledger of say £100K of unpaid invoices. You might raise £85K against those in funding, immediately on commencement.

  Now as invoices are paid by customers, they repay parts of that funding, but at the same time you receive further funding against new invoicing. Providing your debtor book stays constant i.e. at £100K i.e. invoices are raised and paid but the overall value of unpaid invoices remains constant, you effectively never have to repay the £85K that you received (assuming that the ageing of your ledger also remains constant).

  Also, if your debtor book grows, the amount of funding grows. Say your sales grow and your outstanding ledger ticks up to £125K the additional £25K of invoicing will also be funded at 85% i.e. releasing a further £21,250 that brings your total amount of finance up to £106,250.

  Providing the invoicing outstanding remains constant, as does the ageing profile of your invoices - your level of funding remains the same and indeed grows if your sales ledger grows. Finance you can effectively keep forever.

  By Glenn Blackman