Where to Hunt for Funding?
Dear Reader,
There are many reasons why you might be hunting for funding. In this newsletter we look at possible funding sources for the Owner Manager led business and highlight typical terms of such lending.
The Idea
You may be contemplating an acquisition or even considering selling your business to your Management Team via an MBO (see our earlier newsletter ‘Could your business benefit from an MBO?) Strong business growth often also requires funding, and cash flow problems can really restrict growth. As Virtual Finance Directors we often work with Business Owners and Managers to help raise funds.
Game Plan
Funding sources available include:
Debtors Confidential – Bank funding against your customer Debtor security – Confidential Invoice Discounting has the advantage that your Customers are not made aware.
Debtors Factoring – Bank funding against your customer Debtor security but this form is disclosed to Customers so less attractive. Banks see this form as more secure.
Assets – New assets could be funded by either Finance Lease (HP) or Operating Lease (contract hire). Could be used for Assets already purchased for cash.
Bank Overdraft – Flexible but typically unsecured so could be withdrawn with no notice. Banks typically seek security for overdrafts such as Personal Guarantees. Banks tend to be reluctant to provide overdraft facilities.
Bank Loan – so called Cash Flow loans are becoming available once more for the right business, although the lending criteria is much tighter than pre Credit Crunch
EFG Loan – the Enterprise Finance Guarantee loan replaced the Small Firms Loan Guarantee Scheme, and provides Loans secured 75% by the BERR (was DTI) where business owners lack their own security.
Mezzanine Loans – Unsecured loans are available, usually up to £100k, which charge higher interest rates than high street banks but don’t normally require equity. These sources include some of the development agencies as well as new organisations aggregating private individual’s loans.
Private Equity – Private Equity funds are looking for good quality growth businesses to invest into. To succeed businesses needs to be carefully prepared to be ready for the rigorous 3 – 6 month process. (See our website article on Raising Private Equity)
Business Angels – Angel investors will negotiate their equity stake so again this is funding suitable for high growth businesses. Angels can often open doors to new business opportunities.
Vendor Finance – As a business owner you may chose to leave funds in the business you are selling. It is more attractive to receive cash later than reduce the business Valuation!
The End Result
There are many types of Funding and not all types are suitable for every company. The prospect of securing appropriate funding for your business is enhanced by having:
- Strong Management Team
- Integrated Financial plans
- Realistic request for funding
Our Virtual Finance Directors enjoy preparing integrated Financial Plans, often fill a Management Team gap and will ensure that the funding request is realistic. In addition our experienced VFDs have excellent contacts with senior bank managers, Private Equity funds and other finance providers. If you would like to discuss fundraising for your business please contact us.
