| | 1.3 Finance
12. Unsecured Commercial Loan (UCL) | |
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| 13.12 Unsecured Commercial Loan: | | 1. A business opportunity has been identified to offer unsecured commercial loans to cuctomers who choose not to fund their own projects. | | 2. Situations have been identified where a customer and supplier do not known one another and cannot trust one another without the benefit of a middleman acting as escrow. Many substancial projects are once in a life time where long term customer satisfaction and loyalty do not have much benefit. | | 3. Some projects are so unusual that the customer and supplier have never done business with one another before. The customer does not wish to pay for a project up front and then find the supplier cannot deliver as expected. The supplier does not wish to fund a project on the belief that the customer will be able to pay at the end of the project. | | 4. The Unsecured Commercial Loan broker provided finance to the supplier to get the project done using the project as security for that loan until the customer can pay off the loan. The effect is that the broker pays for the project and owns the project untilt he customer is able to buy the project from the broker. |
| 2. Funding: | | 1. All three parties agree the scope of the project, its cost to the supplier and its cost to the customer. | | 2. The broker and the supplier agree a weekly rate of spend based on manpower, contract hire and procured supplier. | | 3. The broker pays the contract hire costs, the broker procures the most attractive supplies and the broker pays the weekly contractors labour costs. A role of the broker is to earn economies of scale by integrating many concurrent projects and managing project costs by the day and by the hour. In theory, the customer could do the role of the broker, but may lack the contracts to earn economies of scale. | | 4. Digital online services drive the project by the day and by the week. The customer is invited to minimise loan interest costs by making payment as the project progresses and inline with clearly defined deliverables. | | 5. Project interest charges are typically a few percent above base rate per calendar month. A monthly insurance charge is also payable to eliminate liabilities on all three parties in the event of a project failure. |
| 3. Benefits: | | 1. The customer risk is minimised - the customer only pays for the completed project or agreed phased deliverables. The possibility of the supplier having a cash flow crisis and stalling the project is minimised. | | 2. The supplier risk is minimised because people will be paid weekly and will not have to survive for many weeks without being paid for the work they have done. The possibility of the customer having a final payment crisis is minimised. | | 3. The broker owns the project and acts as an escrow agent until the customer is able to make the final payment. The broker, customer and supplier are insured against any commercial loss due to unforseen circumstances. |
| 4. Terminology: | | 1. The customer may be known as the Client. | | 2. The supplier may be known as the Contractor. | | 3. The broker may be known as the Escrow Agent. | | 4. The project may be known as the Construction Site. | | 5. An unsecured commercial loan is secured against title to the active deliverables. |
| 5. Alternatives: | | 1. The actions taken by the broker could be taken directly by the customer, but customers may have problems in funding contract hire, procured suppliers and weekly labour. | | 2. The actions taken by the broker could be taken by the supplier, but the supplier may not have the funds to complete the project and may face a cash flow crisis part way through the project. | | 3. Evidence is very clear that 16% of suppliers get into a cash flow crisis part way through a project causing the customer project to stall or to fail. | | 4. Evidence is clear that not all customers has the funds to complete the projects that they begin and suppliers may not get paid for work done. | | 5. The broker provides an escrow service for the benefit of both the customer and the supplier - to minimise risk and to eliminate the threat of a stalled project. |
| 6. How does it work: | | 1. The normal quotation procedure between customer and supplier takes place to agree (1) the scope of works, (2) the price, (3) the duration and (4) the quality. | | 2. The broker is invited to fund the project where the customer is not willing to pay the supplier in advance and the supplier does not have the funds to pay for the project. | | 3. By definition of the quotation, the value of what is to be delivered is at least the agreed price, so the deliverable becomes the security for funding the work to be done. | | 4. A simple contract between all three parties gives ownership of the deliverable to the broker until such time that the customer pays for the deliverable. | | 5. The broker pays the supplier and sub-suppliers and owns the contract hire costs, procured supplies costs and labour costs. A modest insurance cost, a bank interest cost and a broker management cost is involved. | | 6. The supplier is happy to be involved in a project with risk is mitigated with weekly labour payments and the broker picking up the contract hire and procured supplies costs. The supplier is able to minimise their charges because payment risks have been eliminated. | | 7. The customer is happy to be involved in a project with risk of the project stalling when partly completed eliminated and without payments having to be made until real deliverables can be verified. The customer pays a little more to cover insurance, interest and broker costs, but these are trivial by comparison with the benefits. |
| 7. Quotation Procedure: | | 1. When any significant project quotation is prepared by a supplier, the customer is offered three options as: | | (1). The first option is where the customer funds their own project with regular phased payments. | | (2). The second option is where the supplier funds the customer project with the risk of a cash flow issue. | | (3). The third option is where a broker is invited to act as escrow agent to fund the customers project in an honest, open and transparent way. | | 2. Three payment options add complexity and identify risks that the customer may choose to mitigate with a broker. The customer who understands risk will choose to use the broker because the broker keeps all parties fully informed of all actual costs using an online application service. The novice customer will choose to have the supplier fund the project using guestimates to make sure they earn a nice profit at the expense of the novice customer. The wise customer would fund the project directly with weekly payments to get the best possible deal, but they would have to devote a lot of time and effort to make it happen. |
| 8. Risk Assessment: | | 1. The broker has a role to eliminate risk. | | 2. Contract hire costs are contracted directly to the broker who pays all costs directly without any other party being involved. The broker can shop around and get the best deal for any one of many companies. | | 3. Procured supplies are contracted direcly by the broker who pays all costs directly without any other party involvement. The broker can shop around and get the best deal for any one of many companies. Economies of scale are practical. | | 4. Contracted labour is paid weekly in arrears based on approved time sheets. If any supplier drops out, other suppliers can be contracted to provide manpower. | | 5. Risk of the project stalling is minimised. The only delay would be where labour that is not good enough has to be replaced. | | 6. Risk that the customer cannot pay for the project is real because customer due dilligence has limited applicability. The customer does not own any of the deliverable in contract terms, but the location of the deliverable may cause the deliverable to have limited resale value. The value of the deliverable will always be greater to the customer than to any third party, but some of the project costs could be recovered by salvaging the deliverables. | | 7. Interest charges continue month by month until the customer buys the deliverable or the deliverable is sold for scrap. Default payment insurance will pay any losses on the project after the deliverable is sold for scrap - things may breakeven for the broker in a worst case scenario. | | 8. A risk is that the supplier totally underestimated the quotation cost of labour, contract hire and procured supplies. The brokers contract is to deliver the stated scope of deliverable for the quoted price. In an honest, open and transparent way, the customer has two options: | | (1). Can ask the broker to deliver a lesser quality for the agreed price. | | (2). Can offer the broker a higher price to get the quality they require. | | 9. Where the customer wishes to retain the original quoted price, then the customer will be shown the magic of quality reduction to match the price. The broker will use every opportunity to be honest, open and transparent with the customer in how quality will be reduced to match the agreed contracted price. The customer will given every opportunity to pay the right price for the quality that they require. |
| Document Control: | | 1. Document Title: Unsecured Commercial Loan. | | 2. Reference: 161312. | | 3. Keywords: Unsecured Commercial Loan, Bespoke Application Service, Application Service Provider. | | 4. Description: Unsecured Commercial Loan owned by the Customer may be encrypted and downloaded. This document does not provide legal or financial advice. | | 5. Privacy: Public information service to who it may concern. | | 6. Issued: 11 Feb 2018. | | 7. Edition: 2.2. |
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