Business finance.
One of the keys to running a successful business is ensuring you have adequate cash flows to meet the financial obligations of your business and maintain the flexibility to respond to new circumstances and opportunities. This will require careful planning and ensuring your business has access to funding.
Access to Funding
Access to financial support for your business is important, particularly during times of economic uncertainty. In the first instance, many businesses will approach their bank to provide funding.
When you approach your bank for funding, they will likely require that you provide them with a comprehensive business plan that includes revenue projections for the next 2 – 3 years and the assumptions you have made to estimate your returns including any expected impacts on your business.
Your business plan should consider what strategies you would implement to mitigate the impact of any economic or other difficulties your business may face. This may include considering how to reduce operating costs in response to a reduction in revenues and considering other sources of income or capital that may be available to your business.
"Your business plan should consider what strategies you would implement to mitigate the impact of any economic or other difficulties your business may face."
The experienced commercial team at Davenports can assist you in addressing the commercial and legal considerations for your business plan and together with you and your accountant can collaborate your finance proposal to your bank.
Davenports can assist your business with the implementation of bank finance or re-financing of existing facilities; term loans; overdrafts; equipment finance; and other facilities.
Securities
In exchange for advancing money to your business, your bank will require that you provide them with security that they may call upon in event that you are unable to meet your obligations under the facilities provided by them.
Securities you may be asked to provide will include the following:
Guarantees
A guarantee is an undertaking by the guarantor to meet all of the obligations the debtor they are guaranteeing owes to the lender. Guarantees can be limited or unlimited as well as secured or unsecured.
Personal guarantees may be requested of the directors and shareholders of a company borrowing money. There may also be cross-guarantees between companies or trusts related to the borrower.
Davenports can discuss with you whether limitations should be placed on any guarantees you are asked to provide and discuss appropriate limitations. This may include a limitation on the amount the lender can claim under a guarantee or ensuring that the documentation reflects that the liability of each shareholder is proportionate to their shareholding.
General Security Agreement
Your lender may request a general security agreement (GSA) over all present and after-acquired assets of the guarantor. The lender may require that any existing securities your business has been asked to provide be discharged so that their GSA has priority over securities of other creditors or creditors may need to agree on priority among one another.
Specific Security Agreement
A Specific Security Agreement (SSA) relates to security over specific assets as defined in the SSA. An SSA is often required in respect of equipment finance where security is taken over the equipment financed.
Davenports can advise you on any securities you have been asked to provide.
Financial assistance in light of the COVID-19 pandemic.
The COVID-19 pandemic has already had a significant impact on the global economy and its effects will be felt by businesses in months to come.
The New Zealand Government has launched support in the form of the Business Financing Guarantee Scheme (BFGS). Under BFGS, the New Zealand Government will guarantee 80% of the risk of loans up to $500,000 obtained by qualifying businesses with approved lenders.
If you expect that your business will need financial support during this difficult period, you may wish to discuss options with your bank. To facilitate your discussion with your bank you should update your business plan by detailing the expected financial impacts of COVID-19 on your business over the next six months and what you expect normal business to look like over the next 2-3 years. Your business plan should also detail the assumptions you have made to estimate the impact of COVID-19 on your business and what measures may be available to your business to mitigate the impact, including any government support that may be available.
Loan repayment deferrals and additional funding will add to the cost of running your business, so this would need to be factored into your business plan.
Davenports is available to discuss options for business finance with you and can collaborate on your business plan as well as implement any finance you are approved for.
For further Commercial Law advice, get in touch with Jeremy and the Commercial Law Team.
jeremy@davenportslaw.co.nz | 09 883 4420
