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A family-run business specialising in manufacturing car parts, faced a significant challenge: expanding their operations to accommodate advanced technologies and enhance operational efficiency.
With traditional funding avenues proving inadequate finance options for their needs, the company turned to a hire purchase financing strategy to propel their expansion. This case study delves into how the business navigated funding obstacles and secured a pivotal growth opportunity, ultimately transforming their business landscape.
Client Background
A family run auto-parts manufacturer
Shalin is the managing director of a family auto parts business that was established by his father in 1988. After completing his university education, Shalin entered the family business directly and worked his way up to his current leadership position.
The company is a manufacturer of car parts with a primary focus on the Asian and European car markets. They sell their products exclusively online and to dealers, without any physical storefronts.
The Challenge
Raising working capital for strategic expansion
The company had a strategic goal to expand its operations by moving from their current warehouse to a larger one. This move aimed to facilitate growth and efficiency by embracing new vertical opportunities with advanced robotic equipment. However, they faced a significant challenge in securing funding for non-tangible, soft assets, which are typically more difficult to finance. This limitation reduced the number of available funders.
Will Evans, a business finance specialist with extensive knowledge and access to a wide panel of lenders, was consulted to navigate these challenges. Time was of the essence as the company needed to move quickly to secure a suitable facility. Their existing funding provider was unwilling to finance the soft assets, necessitating the exploration of alternative finance solutions.
So with the guidance of Will, how did Millbrook Business Finance help Shalin with his business expansion goals?
The Solution
A sale and hire purchase back agreement
To address the funding challenge, an asset finance solution in the form of hire purchase was proposed. This involved a sale and hire purchase back arrangement where the company sold the assets to the lender and then made repayments for the item, thereby releasing capital back into the business.
The benefits of this hire purchase agreement included:
- Access to £266,000 in funds
- Still had use of the vehicle
- No personal guarantees required
Why an Asset Finance Solution?
Asset finance is a versatile financial solution that allows businesses to acquire equipment, machinery, or other necessary assets without the upfront cost, thereby preserving their cash flow for other strategic uses. In the case of this business, asset finance in the form of a hire purchase agreement was particularly suitable.
This financing option enabled the company to manage the acquisition of new, high-cost robotic equipment essential for their warehouse expansion. The benefits of using hire purchase included access to a significant sum of £266,000 without requiring personal guarantees, therefore minimising personal financial risk.
Moreover, it allowed the business to retain the use of the assets while spreading the cost over time, aligning expenses with the revenue generated from enhanced operational capacities. This financial strategy not only facilitated immediate business growth but also bolstered long-term sustainability by optimising cash flow and asset management.
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The Results
Turnover doubled and efficiency optimised
The successful implementation of the hire purchase financing solution enabled the company to secure a larger warehouse, which presented numerous opportunities for growth. As a result:
- Turnover increased by 115%
- The efficiency of the new robotic equipment allowed optimal use of the warehouse space
- The company launched a new website, further enhancing their online presence and sales capabilities
This strategic move and the adoption of new technologies significantly bolstered the company's operational efficiency and market position.
Summary
Shalin, managing director of a family-run car parts manufacturing business, faced the challenge of expanding into a larger warehouse to improve efficiency with new robotic equipment. The primary obstacle was securing funding for non-tangible, soft assets, which their existing partner wouldn't finance.
With the help of Will Evans, a business finance specialist, they employed a hire purchase solution, raising £266,000 without personal guarantees. This enabled the move to a bigger warehouse, resulting in a 115% increase in turnover, enhanced efficiency, and the launch of a new website, significantly boosting their operational capabilities and market presence.
Get in touch to discuss your business financing needs with one of our experts. Alternatively, apply for business finance with Millbrook now for a tailored financing solution that can help you keep your cash flow healthy and navigate times of uncertainty.
