Cash flow on demand: The benefits of flexible drawdown finance – Rubins

Access to cash flow can make all the difference when it comes to taking advantage of an opportunity.

But borrowers don’t always need all of their funding at the same time.

Whether it’s a developer funding works in stages, a business managing fluctuating working capital requirements or a property investor wanting funds available for their next acquisition, taking a full loan upfront may not always be the most efficient approach.

This is where flexible drawdown finance can offer a useful alternative, providing borrowers with access to an agreed facility that they can draw against as and when the money is required.

 

Funding when it’s needed

Traditional lending generally provides borrowers with a lump sum at completion. This works well when the entire amount is required immediately, but there are many circumstances where funding requirements arise gradually.

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A refurbishment or development project, for example, might involve costs spread across several months. A property investor may want access to capital to move quickly when an opportunity arises, without knowing exactly when that opportunity will present itself. Similarly, a business might experience peaks and troughs in its working capital requirements throughout the year.

A flexible drawdown facility can provide greater control in these situations.

At Alternative Bridging Corporation, the Alternative Overdraft is a flexible loan facility that can be drawn upon and repaid as funding requirements change. Rather than borrowing the entire facility from day one, customers can access capital according to their needs and only pay interest on the money they have drawn down and utilised.

This can help make borrowing more cost-effective, while giving borrowers confidence that funding is available when they need to act.

 

Keeping a development moving

Property projects rarely follow a perfectly straight line. Costs arise at different stages and, as any experienced developer knows, unexpected expenditure can emerge along the way.

We saw this with a client developing a six-unit industrial site. Work was already well underway, and the scheme was approaching completion, but increased costs meant additional funding was required to finish the project quickly.

Rather than raising finance against the development itself, the client used an existing investment property in Bethnal Green as security. The property, which contained three flats let on assured shorthold tenancies (ASTs) and was valued at £1.67m, supported a £344,000 Alternative Overdraft facility.

This gave the developer the flexibility to draw funds when invoices needed to be paid, rather than taking the whole amount upfront. By lending against an existing asset rather than the development site, we were also able to save time on the legal work and due diligence required.

 

Flexible finance for changing business needs

The same flexibility can be particularly valuable for business owners because expenditure does not necessarily arrive according to a predictable schedule.

One Alternative Bridging client in East Sussex required capital for two very different purposes: purchasing artwork for his studio and refurbishing nightclubs he owned in London and Brighton.

We provided a £580,000 Alternative Overdraft secured as a second charge against his main residence. This enabled the client to release funds as and when they were required, while only paying interest on the amount actually drawn.

Some of the funding was used to purchase pieces of art that could be displayed and subsequently sold through his gallery, while the remainder supported the nightclub refurbishments. Importantly, the structure also meant that as the artwork was sold, the client could repay some of the money before drawing again when further expenditure arose.

Rather than trying to predict his exact capital requirement at the outset, the client had a facility capable of responding to the changing cash flow needs of his businesses.

 

Ready when opportunity knocks

There is another important advantage to having access to pre-agreed funding: the ability to act.

Opportunities in property and business rarely arrive at the most convenient moment. An investor might identify an attractive acquisition at short notice, a developer may encounter an unexpected cost that needs resolving quickly, or a business owner could see an opportunity to invest in stock, equipment or premises.

Starting a fresh finance application every time capital is required can introduce both delays and additional costs. With a flexible facility already agreed, funds can instead be available to draw when the requirement arises.

This can be particularly useful for experienced property investors with equity across their portfolios. Rather than viewing those assets simply as investments generating income or capital appreciation, flexible finance can enable them to use that equity to support their next project or opportunity.

 

Another option in the broker toolbox

Specialist finance is at its most effective when the structure of the funding reflects what the borrower is actually trying to achieve.

Sometimes that means a bridging loan to complete a time-sensitive purchase. In other circumstances, a term loan may provide the medium-term stability a client requires. But where the amount and timing of future funding requirements are less predictable, a flexible drawdown facility can offer another option.

For brokers, this creates an opportunity to have a broader conversation with clients. The question isn’t necessarily just: ‘How much do you need today?’ It can also be: ‘What are you planning to do next?’

A client may have equity available in their home, investment properties or other suitable assets that could help provide access to capital for future requirements. Establishing a facility in advance can mean they are better prepared when those requirements arise, without paying interest on money they aren’t using.

For borrowers, that combination of flexibility and access to cash flow can be extremely valuable. And for brokers, products such as the Alternative Overdraft provide another way to deliver a flexible solution that works around the client’s requirements rather than asking the client to work around the finance.