There are some expensive financiers pitching easy to obtain finance to newsagents and other small business retailers at the moment. Two of these pitching for business in recent weeks are charging interest at close to 20% with escalating penalties for late payment.
Their pitch is similar to discredited payday lenders – fast access to easy to arrange finance. They sometimes say there is no interest, because they call it something else and charge the full amount up front regardless of whether you pay out the loan early.
Some of these lenders are outside of banks and second and third tier lenders. They are in a field of their own, at the fringe, and for good reason. I say this based on what I have heard of their tactics at collection based on a missed payment or two. A pressured situation quickly escalates.
I understand that small business owners short on cash may feel they have no choice, usually because of pressure from creditors. However, if you take out such a loan without a cashflow model showing you can meet the payments as and when they fall due you could be making your situation considerably worse – because of cascading costs and and often heavy-handed approach to collection.
You could be better off letting your current situation play out rather than making matters worse by taking out a loan you can’t pay. It all depends on your cashflow projections based on a realistic view of the business. A loan from a lender of last resort may only delay the inevitable.
Insolvent trading is a serious matter. Seeking a loan from outside the usual lending circles at a higher than fair cost could be an indicator of insolvent trading. This is something else to contemplate prior to entering into such a funding arrangement.
I appreciate these are complex matters to consider as you can be caught between being prepared to do anything to save your business and not having the clarity to understand whether the business is actually saveable. Talking to someone not reliant on the business could be a useful step to help guide your thinking.