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Business Overdrafts, Invoice Factoring & Discounting, Trade Finance and Asset Finance
Understanding Business Overdrafts
Increasing falls in interest rates have made overdrafts the most popular form of borrowing for British business. A recent report from Grant Thornton found that nearly three quarters (72%) of British businesses turn to this form of financing over other available methods.
Should you be basing your financial strategy on your business overdraft facility?
Brumark The recent "Brumark" ruling in New Zealand dictated fixed charges as part of a debenture were to be treated as non-preferential debts in the case of insolvency. This ruling is expected to be adopted in the UK in near term.
Impact of Brumark Banks are less likely to offer an overdraft under this ruling but invoice finance companies do not have an issue as they assume legal title to a debt they are funding. Banks will start to favour this lending type more while the big advantage to you is invoice finance is completely flexible while overdrafts need to be negotiated, are fixed finance lines and charge higher interest rates. In addition credit management and debt collection are provided if needed.
Overdraft Alternatives: Trade Finance
If you are buying in goods or materials (UK & abroad) to sell on you will need to fund the trade somehow - most companies don't have the financial structure to fund these trades and if you have a larger order than normal (cheaper supplier deal or a bigger sales order) it may be very hard to finance. Trade finance will help you fund this transaction
For this you will be charged a fee for the transaction plus an interest fee for the loaned sum. Trade finance can be used alongside all other types of finance and is a line of credit your bank will not need to know about.
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