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Payroll Finance – Advice
As world economies slip into recession and new job losses are announced every day, small companies are having to look at new ways of surviving the worst of the downturn.
Payroll finance can be an extremely useful tool in getting credit against your payroll, rather than your sales ledger, which can potentially be used by businesses of any size to help maintain positive cash flow through the tough times. It’s also an excellent tool for rapidly growing businesses.
Payroll finance is available to established businesses which have been trading for two years or more, which have a turnover of at least £100k, a minimum of five employees – and which are profitable.
It is a flexible form of funding enabling companies to ease cash-flow only when they need to. The minimum period is usually three months and there are no restrictions on how a business uses the funds.
The loan is an unsecured facility which doesn’t require directors’ guarantees or additional security – nor does payroll finance have any impact on other existing funding relationships. It doesn’t prevent a business from looking for other forms of credit and is completely confidential; no employee, customer or supplier will know about the agreement.
Usually, the lender grants a funding line equivalent to two months’ PAYE and National Insurance costs - and this revolves in the same way as an overdraft facility.
Costs are based upon a monthly fee and interest is charged on the balance borrowed. There is no exit fee once the minimum term has elapsed.
All companies thinking about a payroll finance deal should seek expert financial advice before agreeing to a loan facility.