Relieving financial pressure from existing debt

The requirement

A recruitment business that was referred through Spark Connect by an FX Partner was looking to borrow £100,000.

The client had an outstanding loan, taken during the pandemic, paying over £4,500 per month in re-payments. They were seeking an unsecured business loan to refinance the existing debt.

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The process

Initially the requirement seemed to be a simple and straightforward business loan as they have been continuously profitable whilst trading for over 15 years.

Spark secured a loan offer for the business that aligned with the client’s requirement, spreading £100,000 over six years and reducing monthly payments by more than half.

However, when discussing the offer with the business’ Financial Director, a challenge was introduced: the directors were not comfortable signing a Personal Guarantee.

Spark leverage their relationship with the lender to propose a debenture as an alternative security. While this would increase the monthly rate slightly, it would still be significantly lower than the existing arrangement.

Despite this, the client also had independently contacted their invoice finance provider for a quote, as they already had a debenture in place with this lender. They wanted to wait for a quote, delaying the decision and pushing it very near to Spark’s offer expiry date.

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Outcome

They chose to proceed with Spark’s offer, as it was the most competitive loan available and it aligned the required £100,000 facility with its security in a business debenture.

Given the business already had a debenture with an invoice finance provider, Spark’s lender would need to establish a ‘second charge’ position. A deed of priority would have to be issued by the client benefiting the provider, to guarantee the later would have priority in reclaiming assets in case of defaults.

As the deed process could take up to three weeks to complete and the lender confirmed that the debenture would automatically be subordinate to the existing one, the invoice finance provider agreed on proceeding with the loan and setting the debenture whilst the deed of priority was still being processed.

Debentures

A debenture is a financial instrument used by lenders to secure loans against a company’s assets. In the event of a loan default, the lender has a claim on these assets to recover their funds.