Funding options for the water supply, sewerage and waste management sector

The guys over at Funding Options explain what finance is available to firms in the water supply, sewerage and waste management sector

Each day, more than 50m households in England and Wales have access to quality water, sanitation and drainage services, provided by 32 privately-owned companies.

The industry was privatised in 1989. A regulatory framework put in place at the time has enabled it to invest over £130bn in maintaining and improving services and assets.

Activities carried out in the industry include the collection, treatment and disposal of waste (industrial and household). At the end of the treatment process, the output can be disposed of or form part of another production process.

In November 2020, the UK water industry was the first in the world to commit to delivering a net zero water supply to customers by 2030 – two decades earlier than the Government’s net zero by 2050 target. The hope is that other countries around the world will follow suit.

Despite this success, owners, managers and operators within the industry can still face challenges when it comes to funding the maintenance or expansion of wastewater assets.

In order to optimise assets and meet legal/environmental obligations, these companies often engage in large-scale investment programmes.

Because water/waste firms don’t necessarily collect the money from their customers in the year that they invest it, they may also require additional business finance to meet their goals.

Fortunately, because these types of businesses usually have lots of assets on their balance sheet and have steady revenues due to contracts with councils and Government, they may find business finance more accessible than companies in other sectors.

At Funding Options, the following finance types could be suitable for you if you are in this industry and need funding:

Unsecured term/RCF loan

Unsecured finance is another popular option for water supply, sewerage, waste management and remediation activities businesses. An unsecured loan allows businesses to invest in new staff, purchase stock for ongoing and future work and fund anything else the business requires.

What is a revolving credit facility?

A revolving credit facility (RCF) enables businesses to access cash to fund their business, repay it and then withdraw it again when they need it. The flexibility of RCFs provide businesses with the freedom to invest in other areas of the business.

Unlike a term loan with a fixed repayment schedule, businesses borrow money, repay it, withdraw again, and so on, for the agreed duration of the finance term.

Some businesses use their RCF to fund “one-off” purchases, while others use it more regularly to support their everyday cash flow.

Asset Finance

Water and waste businesses often require heavy machinery and assets (such as vans, trucks, refinery equipment). Instead of purchasing these assets outright and reducing their cash balance, most companies will fund the assets via Hire Purchase (where they own the asset at the end of the loan) or on a lease.

Hire purchase: definition

Hire purchase is a type of asset finance that lets businesses pay for an asset in instalments. Once the instalments have been paid, the business becomes the legal owner. In certain agreements it will appear on the business’ balance sheet at the start of the term.

Equipment leasing: definition

Hire purchase can be a good fit for companies that know they will need the asset for the foreseeable future. However, for those in need of equipment on a short-term basis, leasing can be less risky. Leasing is a way of renting an asset for a set period of time.

Some businesses decide to return their industrial equipment back to the supplier at the end of the lease agreement, after the equipment has served its purpose. Others may choose to purchase it outright at the end of the period, or upgrade to a newer version.

Invoice finance

Invoice finance lets companies borrow money based on what their customers owe and provides business owners with fast access to up to 90 per cent of the value of their outstanding invoices. It can be a suitable option for companies in the water and waste sector.

As most contracts within the sector are either with Government/council or business-to-business (B2B), most of the revenue is tied up in raised invoices. Invoice finance improves cash flow, allowing businesses to grow and expand quicker.

Selective invoice finance lets the business choose specific customer accounts to finance, while spot factoring enables the financing of specific invoices.

Secured Finance

When it comes to secured loans, there’s less need for the company to have a good trading or credit history. However, secured finance isn’t the only option for businesses carrying out water supply, sewerage, waste management and remediation activities.

For secured finance, the following assets can be used as a guarantee for the lender:

  • Commercial property (e.g. warehouses, shops and offices)
  • Commercial vehicles
  • Heavy machinery (e.g. plant machinery).

Are you looking to fund a water supply, sewerage, waste management or remediation activities project? See what your business could be eligible for today.

SEE YOUR FUNDING OPTIONS

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