Should your business be locking in funding now?

The aftershock of the Iran war and soaring energy prices is set to hit the UK economy harder than most economies, according to the International Monetary Fund.

It’s the latest in a series of destabilising events, from the rumbling conflict in Ukraine to extreme customs tariffs.

Maybe the only thing we can predict with any confidence is more uncertainty.

So how can businesses and investors manage their financial situation to cope in an unpredictable world?

We caught up with Dan Cholewinski and Luke Curtis from VAST Commercial Finance for some informed strategic guidance on general business funding and the specific challenges of the commercial real estate sector.

Don’t wait until the situation becomes an emergency

Across the board, whether you’re an SME service business or a building contractor, their advice can be summed up in two words: be prepared.

As Dan explains, “If you get to a position where you need funding urgently, it is going to be difficult to get what you need if you don’t already have access lined up. That’s why it’s so important to speak with financial advisers now instead of waiting until the situation becomes an emergency.”

Business Finance

Dan recommends SMEs take a good look at their cashflow position, preferably with the help of an adviser, and decide whether they will need access to funding. A cashflow crisis can kill even a successful business, he points out.

It’s really important to have a conversation with an expert

“You might not need it now, but even if you think there’s only a small chance of future working capital pressure or constraints around funding stock, operations or cashflow, it’s really important to have a conversation with an expert who can prepare the facility you might need and have it waiting in the wings,” says Dan.

The reason to act now is that advisers such as VAST need to put together a package to take to lenders, who will also need time to understand the client’s business and its future direction.

Real Estate

In the property world, swap rates have had a direct impact on finance, including higher rates for buy-to-let mortgages and development finance.

“It has increased the level of caution in development finance,” explains Luke. “Lenders must think about how a residential developer will exit the finance agreement if the project is based on being able to sell or let the properties. It is making lenders more selective, which might work against smaller, less prepared developers.”

It is making lenders more selective

The impact of the Iran war on higher energy and material costs will likely lead to rising building costs.

Luke recommends that individuals and organisations looking to finance property deals will need a well-thought-out, structured package to put to lenders

Last Word

The advice for SMEs across all business sectors, including real estate, is clear. Focus on cashflow, not just profitability, and put the time in now to get finance in place, even if there is only a small chance you will need it.

The best way to do that is to work with advisers to position the business professionally to secure funding, something that VAST specialises in.