Finance companies, the lenders, really like this business.
- The loans are short term. Most last three or six months for VAT and up to one year for Corporation Tax.
- Historically, the covenant of the underlying customer has been ‘high quality’ consisting mainly of what we refer to as the “professional” sector (i.e. accountants, solicitors, and architects).
- The loan principle is paid directly to HMRC. Therefore, this removes potential element of the loan being used for any other purpose (or fraud), which occasionally does occur within leasing and asset finance.
- The interest rate can be higher, relative to longer term financing over two to five years.
- There is a high customer retention rate, with many companies using this loan facility two, three, or four times every year.
There is one large downside for these funders – the amount of profit they make on each deal. As the loans are all short term, even if they charge a 6-10% interest rate, the amount of money they make in interest is relatively small. Consequently, they can make money only by having an automated system and hoping for a high rate of repeat business.
We do not know the exact amount that is being lent every year to finance VAT or Corporation Tax. However, we estimate it is north of £250m. Two of the UK’s larger players in this sector probably do around £160m to £200m between them. So, the actual market total could be much higher.
However, we expect the funding for this market to increase significantly as we offer VAT and Corporation Tax bill finance for normal SME companies. With over 2 million companies in the UK, it potentially could be a £1 billion per year lending business. Many thousands of these companies are paying their HMRC tax bills late, with all the fines and aggravation that goes with that. Our service could help them better manage their tax bill and avoid the steep late fees and fines.
WestWon have been funding capital equipment for many years via leasing. Business loans has been a big part of our company for the last three years as companies look for working capital finance. However, with the exception of some Peer to Peer lenders, there have been few companies that are willing to lend money to companies to pay their tax bills.
Jeremy Hall, CEO of WestWon noted, “We can see this business being very big, very quickly. For us, our journey with a client starts with the first deal. Companies often do not buy assets four times every year, other than vehicles. This product will allow us to interact with many hundreds of businesses we otherwise would not have had a relationship with.”
Speak with a member of the WestWon Tax Funding team now on 0116 243 8822, email firstname.lastname@example.org, or get an instant quote.
Written by Jeremy Hall.