Business services finance for agencies, consultancies and contractors

Business services finance is borrowing assessed on fee income, contracts and the debtor book rather than on property or machinery. Where clients pay on account terms, the unpaid invoices themselves can be funded. Where income is recurring, such as letting management fees or retained consultancy work, lenders can size a term loan on it. Where the need is growth or an acquisition, an unsecured loan backed by the directors is common. Most service firms have little to offer as physical security, so the strength of their client relationships and the quality of their accounts carry the case.

Business services finance suits firms with a trading record, creditworthy business clients and accounts that show margins after payroll. Agencies growing their contract book, and letting agents buying recurring income, are often strong candidates.

It is harder for start-ups without filed accounts, firms with one dominant client, and businesses whose clients are mainly consumers rather than companies, because invoice finance usually needs business debtors. Travel firms face extra scrutiny because of customer money and bonding requirements.

Unsecured loans and revolving facilities can see decisions within a few working days in straightforward cases. Invoice finance usually takes longer, because the funder reviews the ledger and client contracts before the facility goes live. Rent roll and agency acquisitions follow the due diligence timetable. Timings depend on the lender and the case.

Invoice finance takes security over the debtor book, often with a debenture and a director's indemnity or guarantee covering invoices that turn out not to be valid. Unsecured loans usually carry personal guarantees. Acquisition lenders may take a debenture over both the buyer and the business acquired.

Invoice finance has two main parts: a service fee based on turnover, and a discount charge on the money actually drawn, usually a margin over Bank of England base rate charged daily. There can also be minimum fees, audit fees and notice-period costs. Unsecured loans and revolving facilities charge interest plus arrangement or facility fees. Compare facilities on total expected cost at your turnover, not on one headline charge.

Shorter payment terms, deposits or staged billing on larger projects, and tighter credit control can all reduce the funding gap. Selective invoice finance funds chosen invoices without committing the whole ledger. Where security is limited, some lenders use the British Business Bank's Growth Guarantee Scheme, which supports the lender rather than the borrower.