Blog1 May. 2017

CFF Case Study

What follows is an example of how CFF “outside of the box” thinking could help your business. The problem is common (banks won’t increase the amount of available funding). The solution is part of our smarter business funding offer. The scenario is hypothetical.

Eddie has a concreting business based in the Waikato. He has been trading for nearly 5 years and has continually achieved year-on-year growth in both revenue and profit.

He owns a rental property and lives in leased premises from where he operates his business.

The bank has provided funding equal to 70% of the value of his rental property. It is a revolving credit facility but because it is used for his business the bank have taken additional security over business assets. Thus, he has an overdraft secured by both personal and business assets.

The bank charges 9.75% pa on funds drawn. There is also a line/management fee of 0.12% per month (equal to 1.44% pa on the limit he has on his facility).

Because Eddie is fully drawn the total/true cost of his facility is 11.19% pa.

Eddie’s business continues to grow but he is finding that cash flow is now becoming an issue, after all growth sucks cash.

Eddie went to the bank seeking an increase in his borrowing capacity from 70% to 80% of the value of his property.

Eddie shopped around for alternatives. Online business loans whilst possessing lots of bells and whistles were on examination very expensive with an annual true rate in excess of 18% pa.
Confidential invoice discounters were equally as expensive and would become intrusive into his business affairs with regular audits and other compliance requirements.

Eddie’s accountant suggested he talk to CFF.

We’re good listeners.

After Eddie told us his story we put a proposal his way.

CFF have a special relationship with a major NZ owned trading bank. With CFF’s involvement the bank will provide mortgage funding at 80% of the value of Eddies property. The interest rate charged (5.15% pa) is the bank’s standard mortgage rate with no premium charged even though the funds are to be used for business purposes. This bank does not require additional security to be registered over business assets.

Additionally, CFF will provide a working capital facility secured over business assets. Because Eddie operates a good business with secure debtors who pay on time he gets the best rate of 10.50% pa on funds drawn.

To allow for exact cash flow management the level of available funds can be viewed online via our client portal, via daily emails or sms alerts (txt messages), or via a simple phone call.
Together CFF and the TSB have been able to unbundle Eddie’s personal and business assets.
Why was the NZ bank happy to accommodate Eddie when the big Aussie banks weren’t?
CFF have given an assurance to the bank that from any funds available to Eddie (from the proceeds of his business activities) then the bank will be the first party to be paid each month.
Because Eddie uses Xero to account for his business activities CFF can also provide expert assistance via in-house Xero specialists.

What does this story tell us;

  • - The bank is not always accommodating
  • - Banks do seek a premium when dealing with SME accounts
  • - It pays to shop around
  • - Look for partners who think outside the box
  • - There is a way to borrow more for less!