Words: Dave Jarvis // Image: AlexLMX

Like many businesses, at some stage you may find that a little financial help is needed to buy the well-priced stock, or buy in products before they go up massively in the latest price increase. It also might be that there is a large order in the pipeline but you’ve not received payment for it yet and there are staff to pay.

Sound familiar? Faced with a low cash flow situation I went in search of finance to see the company through this temporary lean period and it opened my eyes to a complete minefield. 

I figured the best place to start would be with the Federation of Small Businesses’ (FSB) recommended financial company.  After contacting them by email, the next stop was the Internet, and amazingly all the companies advertising (of which there are dozens), were promising huge sums in next to no time. 

One in particular I’d heard of before, and after being advertised that I “could” borrow up to £150k, within half an hour I was on the phone to a very enthusiastic guy (let’s call him John), who told me he was an experienced finance expert and he’d go out to market and get me simply the best deal.  All he wanted was 12 months of bank statements, two years of company accounts and my full details and home address, which I duly sent him.

The next day, John rang me with great news, he’d secured the “best” deal on the market to lend me either £50k or £100k over three years, unsecured, with no early repayment fees and an interest rate of 7.1%, and then recommended the higher figure as this sort of deal wouldn’t be around for long.

I know never to take an offer at the moment it’s given, no matter how amazing it seems. I’ve learnt to always await the fine print and read it thoroughly!

The next morning, when I read the offer from Funding Circle properly, firstly the interest rate quoted was incorrect as it was 8.1%. Secondly there was a previously unmentioned £10k fee added to the loan which was to be paid whether you borrowed for one month or for three years. Lastly, they insisted I had to also sign a Directors Personal Guarantee – definitely a bad sign!

When I worked out the true interest rate over three years (taking the fee into consideration) the APR was 14.7%. However, if I repaid in just three months the APR would be a staggering 67.7%! As far as I was concerned this was not “the best” deal.

Unbeknownst to me, Funcing Circle had also completed a ‘hard’ search on my personal credit score (which is not good for your credit score ever). I complained to John about this who said that he didn’t realise they would be doing a “hard” search until I’d signed on the bottom line, this rather dented my confidence that he was as experienced as he made out to be.

I was then bombarded with emails from FC telling (not asking) me to sign the documents so the loan could go ahead, sometimes twice a day.

I emailed John and told him I wouldn’t be going ahead, he emailed me back and said he’s speak to the lender about reducing the fee.

At this point I had a call from the FSB lender, but I told him he was late to the party and I’d made my decision not to borrow. He then told me that he’s already been out to market to see what sort of deal he could get and all the main lenders had been contacted by John, which precluded him from offering anything. However, he said that the offer I had received was a good one bearing in mind the market.

He then told me a home truth: apparently the fee charged on the loan was not set by the lender but was the brokers fee and could be reduced by the broker if they wanted to get the business.

I had also asked about the Government Growth Guarantee Scheme. Be under no illusion, yes, this guarantees the lender 80% of the value of the loan, but only so they can justify a loan, it protects them, not the lender.  A Personal Guarantee will still be needed with a fee and interest.  If you default on the loan they will attempt to chase the Personal Guarantee holder for 100% of the loan, not 20%.

I’m a bit later on in life and didn’t want a PG hanging over me should the worst come to the worst. Every single loan I encountered on my search wanted a PG and had a massive fee or a massive interest rate to boot. In fact, I couldn’t find a single one that didn’t. 

So my overall advice is to tread very carefully in what is a minefield and ensure you sign up to something which you feel you can afford, but read that small print.