This year has thus far not developed into the financial playground some had hoped: banks are not, on the whole, running to companies waving fistfuls of notes and asking little in the way of interest rates in return. If anything, lending is tougher than it ever has been. That’s not to say finance is impossible to get hold of, however – the pages of PrintWeek are testament to the fact that the lending is out there to help companies wishing to make significant investments, you just have to know what you’re looking for and where you can find it. To offer a helping hand, we have teamed up with Paul Holohan, chief executive of Richmond Capital Partners, and Jon Bennett, commercial director at Surrey Asset Finance, to compile the following list of finance options.

The hope is that this list will give you a basic grounding from which you can get into the financial markets with a little knowledge on your side, saving you time and also giving you a little more backing for those meetings with financial providers. Knowledge, after all, is power, and it’s about time those searching for finance regained some of the power from the lenders.

Hire purchase (HP)
This is where, in order to enable the customer to buy an item that they cannot afford to purchase outright, a finance provider will lend the money for the purchase in return for an agreed deposit amount and a fixed term of rent payments. Each month for the contract period, the customer pays a "rent" amount for the purchase, which is a proportion of the sale price plus interest. When the amount paid back to the finance provider is equal to the value of the purchase, plus agreed interest, the contract ends and the customer has the option to take full ownership of the purchased item (though some lenders will charge a fee for this transfer of ownership that in some cases can be quite high). During the period of the contract, the purchased item is on the customer’s balance sheet but the item is the property of the lender. Therefore, if payments are missed, the lender has the option to seize the item. This also means any major modifications to the item require the lender’s permission. Any damage caused to the item is the customer’s liability to fix.
Pros Proven, tried-and-tested model with transparent structured cost from outset; the asset will be yours at the end; ideal for longer-term investments such as a multicolour press.
Cons You will have the asset on balance sheet and have the responsibility as directors to provide prudent consistent depreciation; VAT has to be paid up front.

Operating lease
Where HP tends to facilitate long-term purchasing solutions, an operating lease is aimed much more at a short-term hiring solution. If an item, say a binding line, has an economic life of 25 years, then a finance provider may purchase that machine and lease it to the customer for, say, five years for a monthly rental amount. The finance provider owns that item and takes on the risk of that item losing value over time. This means that the item does not appear on the customer’s balance sheet. A bonus of this system, in addition to the fact residual value is not a problem for the customer to worry about, is that the rental amounts can be made flexible so that they fit seasonal business patterns – good news for some printers.
Pros Ideal for short-term situations; off balance sheet; no depreciation concerns.
Cons Rental amounts can be high dependent upon the opinion of the finance provider’s view of residual value.

Finance lease
Similar to an HP arrangement, except that in this scenario the end of the contract period does not necessarily result in ownership of the item passing to the customer. So, a customer will identify an asset and the finance provider will purchase that asset. The customer will then lease this asset for a fixed rental amount for a fixed period. At the end of this period, usually five years, the customer has the option to extend that lease or to purchase the asset. Finance also differs from HP in terms of VAT and tax. With finance lease, the VAT is spread across the term of the lease, whereas with HP the VAT has to be paid up front. As for tax, with HP, you can claim 25% of the equipment cost in year one, then in subsequent years you can claim 25% of the reducing balance each year. For finance lease, all the lease payments can be claimed against tax.
Pros All lease payments can be claimed against tax; option to purchase or extend VAT spread.
Cons Costs can be high.

Mortgage
More familiar than most of the other vehicles, the commercial property mortgage is a tried-and-tested method of finance, though obviously the stakes are very high. With this system, a loan is made by a financial institution based on using a company’s commercial building as collateral to secure repayment of the loan. Hence, where HP and finance lease will see the asset seized if you don’t pay, here you could see your property seized.
Pros If all payments are made a valuable asset can be purchased; using a model where the item is rented could be seen as a waste of money.
Cons Must be a long-term solution; property market can be volatile.

Overdrafts
The oft-used overdraft is a favourite financing system in every walk of life, from print firms to students. The bank agrees to allow you to go into the red by a pre-set amount and will charge you interest on any money they in effect lend you when you use this facility. An overdraft is re-payable on demand and is not a loan.
Pros Money when you need it for working capital; available even if sales drop for one or two months.
Cons Payable on demand; watch out for arrangement fee and interest rates; banks may require personal guarantees.

Invoice discounting
Invoice discounting and confidential invoice discounting (CID) are short-term solutions to improving your business’s cashflow, allowing you to pay bills and suppliers when invoices due to you are being delayed. Essentially, a company can draw money against the value of outstanding sales invoices, and under CID they can do so without the customers of that company knowing. From the customer’s perspective, everything is as normal, they deal with the same sales people and the process of chasing payment remains the same. But from the company’s perspective, they have sold that future income to a third party and so when that money comes in it goes straight to that third party. The price a finance provider will pay out against future invoices is usually between 85-95% of the total value, and they also impose charges and interest payments on that loan. This tends to be used as a solution for late payments so that bills can be paid and penalty charges are not incurred. However, it is also sometimes used by businesses looking to raise more money than their overdraft allows, generally at similar interest rates.
Pros Ideal for growing businesses; money related to sales; money immediately available; customers remain unaware.
Cons The costs involved can be high; difficulties if sales drop.

Factoring
Factoring is similar to CID in that it is money earned against future earnings, but where as with CID the money is borrowed against the collateral of owed invoices, with factoring the owed invoices are actually sold to a third party at a discounted rate (i.e. an amount less than the value of those invoices). This third party then has the responsibility of collecting the full debt owed to you, recouping the money they lent you and earning a profit as it is a higher amount than was lent. Like CID, it gives you access to money quickly, smoothing your cashflow while handing over the responsibility of collecting the debt to someone else. Unlike CID, the customers obviously know you have sold the debt to a third party and the connotations of this may be considered negative by some.
Pros Money straight away for better cashflow; lower costs; responsibility for collecting debts is with the
providor.
Cons Provider can upset your customers; there is a stigma attached to it; some providers do not have the same person making calls so no relationship formed.

Financial restructuring
Financial restructuring is often used to get a business into a position where it is operating on a scale more in keeping with its size and cashflow. It basically consists of a programme of financial readjustment through things like refinancing, debt consolidation and cost rationalisation. It can also include the release of equity (see below). Refinancing and debt consolidation have a slightly derogatory reputation thanks to some dodgy television adverts that have been around since the recession kicked in, but in reality both these processes can help make repayments more manageable and free up cash and/or resources going forward.
Pros Can change business models for the better; enables a fresh look at the business.
Cons Negative perceptions.

Capital release schemes
This is another way of getting some money into the business quickly to improve cashflow and ensure outstanding debts can be paid. If you own outright an asset, say one of your printing presses, then you can secure a loan using that press, or asset, as collateral. Obviously, the amount you are lent is determined by the value of the asset, but it can be a useful way of getting money into the business to ease the pressure in a tight month.
Pros Funding for growth for survival; good if your bank is being difficult on say overdraft limits/rates.
Cons Gearing increases so risk does too.

Equity investment
Equity Investment is where an individual, institution or business invests into your firm in return for shares. So, you could sell 40% of your company for a significant sum that would allow you to invest, grow and become more profitable. But that shareholder would then have a share in those profits as well as your company.
Pros Much needed funds for growth; investor can advise/support or even work and contribute to the future.
Cons makes it difficult to sell your business; there can be bad chemistry between individuals invovled; can be meddling and disproportionate ‘control’ by the investor.