The £700k Client: Part 3

Most company directors won’t touch invoice finance. Ask them why, and you’ll get the same answer almost every time. “I don’t want to sign a personal guarantee. I’m not putting my house on the line.”

Here’s what I find fascinating. Those same directors will happily walk into one of the big finance companies you see advertised everywhere, and sign a personal guarantee on a straightforward loan without a second thought.

That’s the one far more likely to be called.

Think about how a straight loan actually works if things go wrong. And “wrong” doesn’t have to mean your fault. Two or three steps away, something happens, a domino effect starts, and suddenly your income’s stopped. No money coming in. A personal guarantee sitting there. Probably default charges stacking on top. And potentially someone looking at your house.

Of course, if that company director had read and acted on my book, they would have an income coming in, and it wouldn’t be a disaster area.

Now compare that to invoice finance. The funder almost always has credit insurance sitting behind your customers. They’ve usually only advanced around seventy per cent of your book debt, not all of it. And if the worst happened and your company went down, they’ve got a charge over those book debts, which puts them near the front of the queue, not the back with everyone else who lent unsecured.

I’m struggling to remember the last time I saw a personal guarantee actually called on an invoice finance client of mine.

And the cost most directors assume is punishing usually isn’t. Aside from a service charge, similar to setting up any business loan, you’re only paying for the money you actually draw down, at a rate that’s typically a good deal better than a straightforward loan.

The guarantee everyone’s frightened of isn’t the dangerous one. It’s the one nobody thinks twice about signing.

Do you need someone on your side? I’m Mark Smillie.