The Finance and Funding Guide 201213-Harriman

The Finance and
Funding Guide 2012/13
A concise guide to the types of finance and
funding available for business
Edited by Jonathan & Melissa Wooller
HARRIMAN HOUSE LTD
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Petersfeld
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GREAT BRITAIN
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Published in Great Britain in 2013 by Harriman House.
Copyright © Harriman House Ltd
Te rights of Jonathan and Melissa Wooller to be identifed as Editors has been asserted in
accordance with the Copyright, Designs and Patents Act 1988.
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About this Finance and Funding
Guide
This eBook contains a range of articles about the various types of finance and funding
avalable to UK buinesses, written by expert professionals within the industry. These
articles provide a useful introduction to:
• what types of funding are available for UK businesses;
• what each type of funding involves;
• whether a type of funding is suitable for your business and your aims;
• how you should prepare before seeking finance.
The Finance and Funding Directory
2012/13
The companion product to this guide is The Finance and Funding Directory 2012/13
which, for each area of finance and funding highlighted in this guide, includes a
directory of companies that can provide that finance. For more information, or to buy
the directory, please visit: http://www.amazon.co.uk/dp/B009ZV0ON8
http://www.harriman-house.com/financeandfundingdirectory2013
3
Foreword by Tracy Ewen of IGF
By Tracy Ewen Managing Director at IGF, http://www.igfgroup.com, the leading
independent commercial finance company in the UK.
This guide segments all aspects of finance and funding available, both for the
convenience of an individual and an organisation. The variety of finance and funding
areas listed in this guide provides myriad solutions to virtually any requirement. Any
commercial entity – be it a long established company, or a new start-up – needs to
consider very seriously all the options available to support its financial requirements.
In the past, when a business needed facilities, whether in the form of asset finance,
general capital expenditure or to improve cash flow, it naturally turned to the
traditional facilities such as bank overdrafts or loans which were the only options
available.
However, growing dissatisfaction with these fairly rigid banking options, and the failure
of some of these options to meet the widening needs of the client, means increasingly
that the Finance Industry has needed to devise more varied and robust responses to
meet these requirements. The Industry, as a whole, has undoubtedly matured and
started to tailor and design its offerings increasingly to the specific requirements of its
clients.
As the Finance Industry has expanded over the last few years, it has become more
complex – not only in its approach – but also through the extensive number of differing
products and offerings that are available, and it is now able to both offer and deliver a
sophisticated mix-and-match between many alternate areas of funding such as
Factoring or Invoice Discounting as well as other cash-flow solutions.
In today’s market, we are finding that our clients are rarely able to find or indeed want
one-off solutions as they have become increasingly more sophisticated in their
approach to their company’s finances. They have also become aware that both
competitive pricing and targeted products offering specific solutions are more likely
to assist with the company’s growth and profitability, so it is important that clients and
advisers alike research their options thoroughly to ensure that they address the short,
medium and long-term options for the businesses as a whole.
Aside from the usual mainstream options there is now a healthy choice of independents
operating in the UK today, which offer a full range of commercial finance solutions.
Whilst they can be less well known compared with high street banks, independents
Finance and Funding Directory 2012/13
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can often offer more flexible tailor-made financial solutions that may better suit the
requirements of a business.
Despite the increasing doom and gloom out there in the marketplace, the options
available to businesses as a whole have never been better or more diverse. Armed with
a good proposal, properly presented and accompanied with sensible financial
projections combined with good advice from the support professionals, there is
absolutely no reason why the products out there cannot provide all the funding that
businesses need. This guide provides you with the all-important starting point and the
choices and approaches you make from the detailed research provided should enable
you to get the support and funding package that you are seeking.
This publication is the start of your journey to success – giving you the support
information needed for you to make that first step towards a financially healthier and
more secure business.
Wishing you all the very best of luck in your research.
Tracy Ewen, Managing Director, IGF Group of Companies, 2 Maidstone Road,
Paddock Wood, Tonbridge
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Introduction
This guide is divided into the various category listings of finance and funding available
for UK businesses. We have been very lucky in being able to persuade some of the
leading professionals who represent differing sections of the finance and funding
industry to provide some informative in-depth articles which will allow you an insight
into their particular specialist industry, along with some tips and guidelines when
applying for, or utilising, the services offered. We are sure you will find these articles
to be both useful and instructive in your quest for funds.
The key to success in raising funding is very much about identifying the different areas
within your company to which a number of funding options will apply and then mixing
and matching between all of them to provide a comprehensive package and solution
specifically designed to meet your company’s needs.
It can be quite surprising how many businesses and individuals are truly unaware of
the options available to them and in a lot of cases areas – such as asset-based
lending – can provide out-of-the-box solutions that move beyond the traditional
financial and funding offerings.
We would strongly urge the use of support professionals such as consulting firms,
accountancy firms, legal practices and surprisingly enough insolvency practitioners.
Insolvency and legal practices can be particularly useful if a company is financially
stressed and unable to obtain funding from traditional sources without perhaps
restructuring their operation first. These organisations can provide valuable advice in
putting together the right platform or arrangement, thus enabling other aspects of the
funding options available to be brought into play and meet the needs of the company
as a whole.
It is often best to write down your financial requirements first as this will allow you to
piece together the different areas or segments of funding that will be included in your
proposal. It is again also reasonably key to ensure that your financial projections are
accurate so that when making an application, or indeed discussing your proposal in
the first instance, you are able to provide a clear and concise picture.
We do hope that the articles contained within this guide will provide you with an
introduction to the different types of finance and funding that are available for UK
companies and how to go about obtaining them.
Jonathan Wooller, Editor
Finance and Funding Directory 2012/13
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Factoring and Invoice Discounting
Debt purchase facilities allowing a business to raise finance against invoices raised.
A Factoring service combines raising finance with credit control, i.e the Factor will
collect your outstanding debts on your behalf
Finance and Funding Directory 2012
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IGF – SME cashflow assistance
By Tracy Ewen, managing director at IGF, http://www.igfgroup.com, the leading
independent commercial finance company in the UK
Times remain tough for UK firms. Company directors and their advisers are working
hard to return to growth, however right across the SME market, business confidence
remains worryingly low. Many SMEs we are speaking to seem hesitant to take on new
financial commitments in the current environment because they are unsure as to what
the future might hold and are scared of over-extending themselves. Generally we are
seeing that industries such as haulage, construction and printing are particularly
cautious in terms of their predictions for growth this year. Having said that, a large
proportion of our clients have increased their turnover over the past few months and
are predicting at least some growth over the coming year, which is a positive sign.
Certainly smart entrepreneurs and company directors are right to remain cautious.
Banks are still not lending freely to individuals or businesses and yet cash remains
king. Although many SMEs are still hoping that the Government will step in and help
ease this funding bottleneck, the wait for good news in this area is likely to be a long
one, as SME lending is likely to remain a contentious issue between the banks and the
Government for the foreseeable future.
The National Loan Guarantee Scheme may look like an attempt to address this issue
but the cynics among us might think that if Project Merlin hasn’t worked – and this
scheme looks like an admission that it hasn’t – then why would The National Loan
Guarantee Scheme be any better?
At first glance, the Business Finance Partnership also looks like a reasonable way to
help SMEs to access growth finance. However, the reality of trying to access funding
for an average, solvent British SME paints a dismally bleak picture. Until the
Government’s words are put into action, and unless this happens very soon, we cannot
expect much to change.
Certainly, businesses need to know exactly what sources of finance and credit are
available, and what their cashflow looks like on a week-to-week and month-to-month
basis. Businesses need to know what sources of finance are available to them in order
to take advantage of the improving economic outlook.
Finance and Funding Directory 2012/13
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Cashflow
Planning your cashflow projections – whatever might be happening in the economy –
is absolutely fundamental. If you get it right, this process will alert you to any potential
problems well in advance.
There are some simple processes that make it easier for you to get paid. Businesses
should make sure all invoices are correct before they’re sent out, to ensure that
customers have no excuse for not paying. You also need a strong process for chasing
up your invoices. Always balance your credit terms vs your cashflow needs and make
sure to tell your potential customers upfront about your credit terms.
Also, many businesses fail to look out for bad debt. This is a mistake – the more you
can anticipate and mitigate bad debt risks, the more profitable you will be in the long
run. In addition, don’t automatically associate higher sales with better cashflow. It is
sometimes the case that if a large proportion of your sales are offered on credit terms,
when sales increase, your accounts receivable increase, but not your cash.
Different borrowing options
The recent economic downturn was caused by a worldwide withdrawal of credit
availability. This situation remains a major problem, and it has restricted the options
available to SMEs. So what are the options?
Bank overdrafts have long been the default credit option for most SMEs but post-credit
crunch, overdraft borrowing has become scarcer and more expensive. An overdraft
may still be worth considering, but the deals are not as competitive as they used to be.
It may be sensible to look into other options.
Businesses might prefer to look to invoice finance. This is borrowing money against
your sales ledger. In practice, it means cashflow situations improve with every new
customer signed. The two main types of invoice finance, Factoring and Invoice
Discounting, are broadly similar in the access they give to funding, though Factoring
also includes the outsourcing of the business’ credit control function.
With invoice discounting, there is less work for an invoice finance company to do. This
will reduce the administration costs associated with the service provision and
ultimately this will prove to be a cheaper option.
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Asset Based Lending is another alternative. This enables a company to fund the high
debtor levels associated with expansion by unlocking the potential of the assets on its
balance sheet. Any asset may be considered – machinery, equipment, sales invoices,
or a whole host of other options. With ABL, SMEs can ease their cash flow through
regular payments over an agreed period of time.
Most importantly, do your research and ensure you find the most suitable option for
your company. Do not just look to the short term in reviewing your borrowing options
and managing cashflow, but rather be prepared for what may occur months or perhaps
years down the line.
Tracy Ewen provides her top tips to improve cashflow:
1. Plan, plan, plan! Prepare cashflow projections for next year, next quarter and,
if you’re on shaky ground, next week;
2. The key to managing cashflow is to be aware of any problems as early and as
accurately as possible. Financial services providers are wary of borrowers who
suddenly need to have money today;
3. Finance problems can often be self-inflicted. It seems obvious but companies
which send out incorrect invoices often find that their customers end up
returning an invoice and requesting a new one;
4. Protect yourself against bad debts. Bad debt protection cover provides clients
with protection for up to 90% of any loss suffered by reason of the failure of a
debtor to pay, owing to insolvency or protracted default;
5. Balancing credit terms vs cashflow needs is something many businesses
struggle with. Be sure to tell your potential customers upfront about your
credit terms – before you provide your product or service;
6. Don’t always associate higher sales with better cashflow. If large portions of
your sales are made on credit, when sales increase, your accounts receivable
increase, not your cash;
7. You may be able to raise cash by selling and leasing back assets such as
machinery, equipment, computers, phone systems and even office furniture.
However, you could lose your assets if you miss lease payments.
About IGF
IGF is an independently managed commercial finance company specialising in the
small and medium sized business market, particularly companies from new start up
to £10 million turnover per annum.
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Part of the Greater London Enterprise Group of Companies, an economic development
and investment company owned by the London Boroughs, IGF was established in 1997
and provides working capital funding, sales ledger management facilities, credit control
services, bad debt protection, direct debit facilities, debt recovery services, payroll
facilities and commercial finance for companies nationwide.
http://www.igfgroup.com
Contacts
Holly Tyzack, Rostrum Communications, PR Consultant to IGF
[email protected]
+44 (0)207 440 8674
An Introduction to Factoring and
Invoice Discounting
Invoice Discounting and Factoring have been around in one form or another since
biblical times (moneylenders in the Temple) and in the current market both of these
solutions undoubtedly provide the mainstay of a company’s cash flow requirements.
Consequently, this sector has replaced traditional overdraft facilities and become the
preferred method for business financing.
Factoring is by far the most popular solution available, as it not only provides cash,
but also – if used correctly – can reduce the overall overhead costs of the finance
department. Invoice discounting is an alternative way of providing cash with the
company retaining control of its own finance department and the chasing of debts,
which can be preferred as the clients will not be aware that their debt is being
discounted.
Factoring – The basics
There is a wide choice of factoring providers available in the market, ranging from the
very large traditional funders that are attached to the banking community, through to
the specialist independent factors that can be far more flexible in their approach.
The principal of factoring is quite simple: you raise an invoice to your client for
products or services provided; and at the same time as you send the invoice to your
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client, you apply to your factoring company to have the invoice discounted, as per your
agreed facility. The factoring company will check that the invoice meets the
requirements and the conditions that are set against your facility and will normally
discount the invoice straight away, passing the money on to you within 24 or 48 hours.
When the invoice becomes due for payment, the factoring company will issue your
client with a statement and carry out all of the credit control procedures, including
chasing clients who do not pay on time, and the outstanding invoice will be paid by
the client to the factoring company direct. Once the funds are received in full by the
factoring company, they will release the remaining balance of the invoice owed to you,
less the agreed fees and charges and the advance already made.
Two types of factoring are “recourse factoring” and “non-recourse factoring”, which
differ mainly in one area only. In the case of recourse factoring, the factoring company
does not take on the liability of the debt should the client refuse to pay or go bust,
whereas with non-recourse factoring, the factoring company accepts certain risks and
agrees within the facility to cover these debts. It should be noted however that in the
event of a genuine dispute between the business and its client, the non-recourse
factoring company is unlikely to pay out. In some cases the factoring company will
require additional protection to be taken out – especially in the event that one or more
of the company’s clients represents a high proportion of the overall debtor book.
Factoring facilities are often separated from the usual company bank accounts, as very
often the larger institutions will take guarantees that crossover between both bank
accounts and factoring facilities.
Advantages of factoring
The company gets the benefit of an initial lump of cash and its debtor book can be
discounted anywhere from 80% to 100% of its total value (although the latter is less
usual and is mainly used in – for instance – making an acquisition or purchase of
another company).
You will be able to raise invoices on a daily basis and discount them to the agreed
percentage, thus greatly improving cash flow. Across the initial payment and the
ongoing cash flow discounting, the company will usually benefit from a large cash sum
and be secure in the knowledge that it will receive very fast payment on a fair amount
of the invoices that it raises.
You will have access to a wide ranging cash flow facility; a reduction in cost to your
credit control side of the business; the ability to protect against bad debts – dependent
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on the type of facility you take; and access to credit rating facilities to establish the
credit worthiness of your clients at the outset.
The Factoring Industry is very competitive, and as a result charges and costs are usually
equally competitive.
Disadvantages of factoring
Disadvantages may include aspects such as being locked into an agreement for between
one and two years; having persistent bad debts which can affect the amount of cash
flow facility available to you; also, some clients may not like to be chased by a factoring
company, so it is imperative that you explain the arrangements you have made with
the factoring company to your clients.
In some cases, the factoring company may reduce the level of advance against those of
your clients that are deemed to be high risk, so it is a possibility that over time your
client, which was being discounted to the maximum level, may have their percentage
advance reduced because their credit worthiness has reduced and – in extreme cases
– the factoring company may refuse to advance against those clients at all.
If for any reason the invoice is not paid, and depending on whether you have a recourse
or non-recourse factoring agreement, the value of the invoice could be deducted from
your overall facility – thus restricting the amount of money available for drawdown in
the future.
An additional issue is that of concentration, which is when one or more clients
represent a significant proportion or percentage of the overall total debtor book value.
This can usually be resolved by either reducing the advance on those companies’
invoices, or taking out insurance cover against those clients.
A company which has a debtor book with large amounts of disputes, or a history of
write-offs or badly paying clients, will experience a reduction in the amount of funds
a factoring company will be prepared to advance, and if it is a serious problem it will
probably result in the factoring company declining to provide a facility.
In some cases a company may have too many small invoices in terms of value to collect
and this again either restricts the amount that can be advanced or indeed rules out the
facility as it would be too costly for the factoring company to collect.
Many UK-based factoring companies will only provide factoring facilities for UK-
based companies, however there are some specialist independent organisations – along
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with larger banking institutions, that provide export factoring – so if this is relevant to
you, it is important to choose a company which provides export factoring facilities.
As a rough guide, most factoring companies look for businesses with turnovers in
excess of one hundred thousand pounds and have a reasonable spread of clients
throughout the entire debtor book. Generally they are looking for debts under 90 days
although in some cases this can be extended, and they are particularly interested in
the type of contracts and contractual conditions that the company applies to its clients.
Factoring is not available to retailers or companies who sell directly to the public.
Invoice discounting – The basics
Invoice discounting is the main cash flow alternative to factoring and is a very effective
way of improving the immediate raising of cash for a business. Again, generally the
company has to have a reasonable level of turnover and this facility is not available to
retailers or companies who sell directly to the public.
Invoice discounting releases money from the debtor book and can be up to 100% of
the total debts. Unlike factoring, the company retains complete control over the
reporting and collection of the debts, which it chases and collects itself.
This option is often favoured by companies who feel uncomfortable with their clients
knowing that they are discounting their ledger and also with some of their clients, who
may refuse to accept invoices which are tied into factoring agreements.
The invoice discounter will be particularly interested in the quality of the clients and
their debts and they will instigate a detailed overview of those debtors and usually
review the company’s overall strategy and the business procedures and conditions of
contract that are in place.
The invoice discounter will charge an agreed percentage, plus an interest payment
against each invoice raised. These costs will be deducted from their payment and they
will remit the remaining amount to your business. When the client pays their invoice,
the money you receive has to be paid immediately to the invoice discounter to repay
their advance, less the agreed fee and interest.
This process can be repeated time and time again, however the invoice discounter will
re-evaluate the facility on a regular basis taking into account any delinquent client
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debts and – as with factoring – you can choose between recourse and non-recourse
facilities. Again, this will be subject to specific conditions set by the discounter.
In some cases, discounters will agree to advance money against specific customers as
opposed to the entire debtor book and the main advantage of this is that you only have
to pay the fees and interest agreed on those specific customers. It is very important
however you ensure that there are no disputes or problems with the customers that
you discount as there can be significant penalties and costs attached to non-payment
in these instances.
Invoice Discounting is typically offered to more established businesses with reasonable
balance sheets who can also demonstrate their ability to undertake credit control and
undertake monthly reconciliation. Naturally, costs are of prime interest to the company.
These normally include interest charges and a service or management fee, which is
calculated on an annual basis and will be expressed as a ‘minimum payment’ that your
company will have to pay annually, regardless of the number of invoices that it
discounts: this fee is usually expressed as a percentage of turnover.
As a general rule, invoice discounting fees are slightly cheaper than factoring, especially
if you’re selective about the number of customers that you are looking to discount.
In some cases the discounters will require credit insurer’s charges to be levied,
dependent on the appropriate risk or perceived risk of your client.
The process of appointing either a factoring or invoice discounting company will
involve an initial meeting to discuss the business as a whole, the type of clients the
company has and the overall facilities that are required. Usually the discounter will
provide an initial offer in principle, subject to due diligence. They will then provide
an offer in writing and outline all charges associated with the facility and in some cases
charge a take on fee or charge for carrying out the due diligence and overview.
If the offer is accepted by both the client and the factoring or invoice discounting
company, a team will be sent in to carry out due diligence to look at areas such as
contractual arrangements, number of clients, credit checks etc and will usually take a
sample of customers to contact direct to ensure that the debt exists and that there are
no issues with the products or services that are being provided.
After the overview and due diligence has been carried out, the offer will be formalised
and upon acceptance and signing of a contract by the client, initial monies will be
released and the facility will begin from the date of signing.
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Certain points regarding the contract should be established from the outset: including
the length of the facility; what record the discounter has in debt collection; what
happens in the event of a bad debt being incurred or if payment is refused by a client;
what the percentage is that the discounter is prepared to advance against the debt; and
what happens in the event that the credit worthiness of a client declines over time.
One of the key questions to ask is: what happens if you want to end the agreement
either at the end of the agreed facility period or more importantly prior to the agreed
date? It is quite usual for there to be a penalty should you wish to come out of the
facility early, and it is worth agreeing that penalty from the outset.
If you ensure from the start that you understand how factoring and invoice discounting
works, this can provide a superb way of releasing funds and assisting with cash flow,
and both have many additional but differing advantages.
Factoring and invoice discounting facilities have become more and more sophisticated
over the years and now can be tailored specifically to the client’s needs, and in most
cases are far more flexible than overdraft facilities. As a company grows, the facilities
on offer can provide almost unlimited cash flow, providing the client continues to meet
all the agreed contractual requirements. There is no doubt that these flexible facilities
have become the preferred choice of the majority of businesses in providing financial
solutions for everyday requirements and if managed properly, definitely provide a
quality solution for cash flow in today’s marketplace.
Data sample
Sample of information from the Factoring and Invoice Discounting directory:
ABL Resources Ltd, P.O. Box 1231, High Wycombe, HP11 9BU, 0800 083 9688,
http://www.ablresources.com, [email protected],
Bank Leumi (UK) plc, 20 Stratford Place, London, W1C 1BG, 0207 907 8000,
http://www.bankleumi.co.uk, [email protected]
Calverton Factors Limited, Calverton House, 1 Keller Close, Kiln Farm, Milton
Keynes, MK11 3LL, 01908 268888, http://www.calvertonfactors.co.uk,
[email protected]
For the full directory of companies in the area of Factoring and Invoice Discounting
please see The Finance and Funding Directory 2012/13
(http://www.amazon.co.uk/dp/0857192205).
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Finance and Funding Directory 2012
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Apex – How to choose an auctioneer
With so many auctioneers available it can be tricky to select the right one. Choose
carefully and your client will be rewarded with high sales values and smooth service
during a stressful time; make the wrong choice and risk feeling the wrath of landlords,
your client, buyers, shipping companies, the Health and Safety Executive and the like!
The following article is a guide on how to select an auctioneer, what to look for, and
more importantly what to look out for.
Understand your assets
The first step before drawing up a list of potential auctioneers is to understand the
asset class of the items that you are looking to liquidate. The internet has spawned a
huge number of specialist (or boutique) auctioneers that focus on certain asset classes.
Although smaller than the traditional big boys, these auctioneers will have a captivated
following which can really drive up the potential sales value of the assets when
compared with a general auctioneer.
The second area to focus on is quantity. If you are looking to send thousands of items
to auction – computer equipment, for example – this might be beyond the capabilities
of the boutique auctioneers. This is for two reasons. Firstly, more manpower is needed
to catalogue all the equipment, so not having enough employees could cause delays in
the project. Secondly, if the auctioneer is planning to sell online they are going to need
to be running a fairly robust system, which the majority of the boutique auctioneers
can’t afford to do and don’t have the expertise for.
Finally, it is important to understand the potential market for the assets. Some more
specialist assets will require global exposure to obtain their true market value. So
picking an auctioneer that has regular experience of marketing to and, more
importantly, exporting into foreign countries will be a huge advantage.
Site visit and proposal
Once you have shortlisted your potential auctioneers the next step is to invite each
party to visit the site. From here they will typically provide a written proposal. In the
UK each company will usually be shown around individually, with their competitors
remaining undisclosed. The US, however, takes a more open approach by showing
around all interested parties at the same time. This is sometimes also used in the UK
where it is not feasible to carry out multiple visits, for example at high security sites.
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Financial options
The proposals you receive from your chosen auctioneers may include a set of financial
options for the sale. These could be one or a combination of the following:
1. Commission sale – This is the most common option and involves the auctioneer
taking their fee from the buyer, and sometimes the seller. This is worked out as
a percentage of the hammer price (the price that each item sells for before tax).
For example, an auctioneer sells an item for £100 with 15% buyer’s premium and
5% seller’s commission. The buyer will be charged £115 (plus VAT) and the seller
will be returned £95 once the buyer has made payment.
2. Guarantee – Commonly offered by boutique auctioneers, this option guarantees
a defined sales value. This is a gamble on the auctioneer’s behalf so if the sale
does not reach that value they will have to put their hands in their own pockets
to return the promised amount. On the flip side, if the sale achieves above this
amount the auctioneer will be looking for a higher seller’s commission on the
amount achieved above the guaranteed amount.
3. Outright purchase – From time to time an auctioneer may offer to buy all of the
assets available for a fixed fee. The auctioneer will then sell the items from site
or move them into storage.
The key to choosing the right option above is in understanding your client’s needs and
the market for the potential assets. An outright purchase will provide your client with
an immediate cash injection which might be of benefit, whereas a commission sale
will provide a greater return if you are confident of the appeal of the asset to the
potential market.
Expenses
Included in the proposal should be a breakdown of the auctioneer’s proposed expenses.
These expenses are to cover both the marketing and the project management of the
sale. Some auctioneers may ask for this amount to be paid upfront but typically these
are deducted from the sale proceeds.
It is generally frowned upon within the auctioneer community to profit from the
expenses but it is good practice to ensure that your chosen auctioneer will correctly
detail all expenses and not charge for costs that have not been incurred.
Site management
Whether the assets are intended to be sold from site or will be moved to the auctioneer’s
premises there will need to be representatives from the auctioneer at your client’s site.
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It is important therefore to ensure that the auctioneer has the correct health and safety
procedures in place, conducts regular audits and correctly controls any third parties
who will enter the site (buyers, transport companies, etc).
Sales options
There are a few different options auctioneers will offer as a disposal method for the
assets you are looking to sell. With each one the assets can either remain in their
original location or be moved into storage. The choice is down to your client’s needs,
but where possible it is best to keep the assets on site so as not to incur transportation
and storage costs.
ONLINE AUCTION
The most cost-effective sales option is the online auction. This involves all assets being
photographed and catalogued then uploaded to the auctioneer’s website or chosen
sales platform, driving potential buyers to the sale over the course of around three
weeks and then finally invoicing the successful bidders.
There is no need for the buyers to travel to bid on the equipment so this option enables
the asset to reach a global audience. The success of reaching a global audience will of
course depend on the auctioneer’s marketing skills.
If an auctioneer is offering an online auction as an option it is important to do a
technical assessment of their website or chosen sales platform. Important areas to
question include the capacity of their server, procedures they have in place should their
site go down, and how secure the site is – for example, do they have SSL encryption?
Online auctions do have risks, the main one being that because bidders are not
physically present in an auction room the risk of rogue bidding is greatly increased. It
is important to ascertain what, if any, measures auctioneers have in place to mitigate
this risk. These could include taking deposits from bidders before allowing them to
bid, and company credit checks. These checks can prove invaluable in ensuring a timely
exit from the site as delays can be caused if the auctioneer is having to resell an item
following a buyer defaulting.
Depending on the circumstances surrounding the sale, an online auction can also be
at risk of sabotage from disgruntled ex-employees. A good online auctioneer will have
procedures in place for removing bidders from auctions or preventing certain users
or companies from registering for the auction.
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PRIVATE TREATY SALE
This option will be offered if the assets to be sold are unusual or of a substantially high
value, for example a complete production line or facility where there is no possibility
of breaking up the asset into smaller components.
A private treaty sale will take place over a number of months, with interested parties
invited to submit sealed bids for the assets. The marketing approach is typically highly
targeted, as there may only be a handful of potential buyers globally. Bids are submitted
to the seller for consideration, and the auctioneer actively negotiates with the interested
parties to attempt to achieve the highest possible sales value.
WEBCAST/LIVE AUCTION
The final option is a live auction. This is where the bidders have to travel to either the
site where the assets are located or the auctioneer’s sale room. Compared with the
online version, expenses will be much higher as the auctioneer will incur a greater
level of costs to set up the auction (either through moving the items to their premises
or through having to set up an auction environment onsite).
For some clients this option may not be suitable due to health and safety or security
issues. It may also be that the potential sales value does not warrant the increased level
of auctioneer expenses.
Some auctioneers will offer a webcast option in addition. This is where the auction is
broadcast online through either their website or their chosen sales platform. The
advantage is that the assets are made available to buyers who are not able to physically
attend the auction on the day.
Post-sale activity
With some sales, not all assets will be sold on the day. Rogue bidders and defaulting
buyers can leave certain items unpaid for, so it is important that the auctioner you
choose has procedures in place for selling unsold items after the auction.
Reporting
Understanding the process of the sale at any point can be vital. A good auctioneer
should be able to provide you with real-time reporting on bidder numbers, sales value,
current expenses incurred, final sales values and the total of the outstanding debt.
Having these at your disposal will ensure that both you and your client are constantly
in the loop should any snap decisions be required.
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An Introduction to Leasing and Asset
Finance
Leasing and asset finance is one of the staple forms of funding – in particular for plant
and machinery and other physical assets that businesses and entrepreneurs are looking
to purchase.
Whether it is buying new assets or machinery, or indeed refinancing existing plant
and machinery to release funds for other activities, leasing and asset finance
agreements are the ones most usually utilised.
Hire purchase agreements are one of the most readily used and recognised facilities
which are normally based on a fixed term over a number of years and include the
repayment of both interest and capital at the same time. At the end of the term you
own the asset once it is fully paid for.
Leasing assets basically means that you rent or hire the asset over a period of time but
never own it outright. In some cases the leasing provider will allow the purchase of
the piece of equipment for a nominal sum at the end of the term, but in most cases
will look to sell on the asset once the finance agreement has ceased.
Leasing does have its advantages in a situation where technology is prone to change
rapidly, and a company will need to upgrade to more modern equipment within a
relatively short period of time.
Both leasing and asset finance can cover everything from plant, machinery, cars, office
furniture and many other applications. Deposits will normally be required and there
can be agreed payment holidays at the front end of any agreement.
In addition to high street banks, there are plenty of specialist independent
organisations providing these facilities, and most manufacturers will already have
agreements in place with finance and leasing providers for their clients to utilise at the
time of purchase.
These facilities are flexible and usually cost-effective and can generally be extended
over a payment period ranging from one year up to a maximum of around 10 years. It
is important to understand the conditions of any loan agreement, especially in the case
of early repayment or default and it is often worthwhile getting a second opinion –
especially if the capital sum involved is quite large.
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Data sample
Sample of information from the Leasing and Asset Finance directory:
ABN AMRO Commercial Finance plc, 1st Floor, 15 Devonshire Square, London,
EC2M 4YW, 0800 077 8547, http://www.abnamrocommercialfinance.co.uk,
[email protected]
Bank of Ireland (NI Corporate & International), 1 Donegall Square South, Belfast,
BT1 5LR, 02890 4330 00, http://www.bank-of-ireland.co.uk
Capital Solutions Group Ltd, Bayheath House, Fairway, Petts Wood, Kent, BR5 1EG,
08448 00 927, http://www.csg-lease.co.uk
For the full directory of companies in the area of Leasing and Asset Finance please see
The Finance and Funding Directory 2012/13
(http://www.amazon.co.uk/dp/0857192205).
Finance and Funding Directory 2012
23
Commercial and Corporate
Finance
Structured Finance for SMEs and Corporate Businesses
Finance and Funding Directory 2012/13
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Leumi ABL – Flexible and adaptable
funding for growing businesses
Benefits of ABL
As many businesses increasingly seek flexible and accessible funding, the popularity
of asset-based lending (ABL) has grown as a viable alternative form of financing.
Businesses are looking to leverage their assets more to maximise funding and both
businesses and their professional advisors now regard ABL as an attractive proposition
to assist business growth.
ABL can deliver much needed flexibility in a variety of business scenarios. Invoice
finance is widely used as an effective way to improve cash flow, and by utilising a range
of assets including stock, plant and machinery, clients are able to maximise their
funding lines.
A robust product, ABL has already proven its reputation within various economic
cycles – boom or bust. Over recent years, the continued tightening effect of the credit
crunch has forced changes upon many businesses, forcing them to refocus plans and
ensure they are in the best shape to thrive. For businesses experiencing change, ABL
provides flexible and alternate financing solutions that work in tune with the business.
The reasons for the increasing popularity of ABL are simple. As business owners assess
their balance sheets and look to other assets to raise business finance, ABL stands out
as a funding tool that can deliver sophisticated solutions for a variety of scenarios
including improving existing working capital, financing growth, restructuring, funding
an MBO/MBI or facilitating M&A plans. In addition, an ABL proposition is suited
well to a wide variety of business sectors. These include any sort of manufacturing,
haulage, recruitment, wholesale, distribution or engineering business.
Selecting an ABL provider
Clients must take care to choose the right funding partner for their business. This is
an important business decision that is critical to both current and future liquidity and
the successful growth of the business.
There are several options when looking at providers of ABL. Many of the mainstream
clearing banks have an invoice finance division, but may not always offer a full ABL
Finance and Funding Directory 2012
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capability. There are also a number of innovative, independent providers in the UK
market who are able to react with speed and agility to the needs of their clients. Such
providers tend to benefit from flatter hierarchies than the dominant banks which
enables decisions to be made quickly, making deals certain and deliverable in short
timescales.
Good ABL providers will take a long-term view and leverage the value of their clients’
business assets, structuring the funding facility to suit the exact business needs of the
client so as to maximise liquidity.
Businesses should look for funding providers with a solid track record who can
demonstrate excellent client relationship management and support throughout the
client’s growth. Particularly during periods of economic uncertainty, those funders
who can offer stability and solid risk assessment, coupled with an innovative and
creative approach to financing, are well placed to support the growing numbers of
businesses choosing ABL.
Where speed is of the essence, it is important that businesses select a financing partner
who has the ability to move quickly. Short decision-making lines, fast credit approvals
and continuing involvement of the senior team throughout the relationship, all point
to an ABL provider who is prepared to pull out all the stops to structure the deal
quickly.
Trends in the market point to an increasing appetite for multi-facility deals as clients
seek to maximise the funding available. Funding providers with the ability to offer a
full ABL capability are well placed to support clients through all stages of their growth.
Ultimately it is all about fostering excellent relationships. All parties to the deal must
be able to build trust, truly understand the client’s business strategy and have
confidence in the client’s long-term business potential. This will facilitate a speedy,
smooth and straightforward deal process for the right opportunities.
Good businesses seizing growth opportunities will require flexible financing
arrangements to fuel their growth plans from a provider they can trust, and the ABL
sector is well placed to assist.
Becoming a client
For businesses considering using ABL to support their growth plans, what are the
practicalities and what types of information do you need to provide to funders to
ensure a successful application?
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It may sound obvious, but having accurate and up-to-date management information
ready to present to potential ABL providers is essential. Forecasts, including profit and
loss, balance sheet and cash flow, based on sensible assumptions which reflect what is
actually happening within your business are very important. For example, show that
gross profit margins are in line with what is being achieved; and if they are different,
explain why this is the case.
Forecasts need to be achievable and not over-optimistic. It may be advisable to engage
the services of your accountant if necessary to ensure management information and
forecasts provide a positive impression of your business and growth ambitions.
It is important to research the market and understand the scope of ABL offerings
available. Be clear about what facilities are required, both now and in the future, and
what security structure is to be put in place.
Whilst price is important, it is not the overruling factor. The most important point is
to have a funding partner who fully understands your business and the market in
which you operate. This way the ABL provider will be able to take a long-term,
rounded view of your funding requirements, and structure an appropriate facility to
meet your needs.
It is always a good idea to meet someone from the operations team – ideally the person
who is to be your client manager – to ensure this is someone you can work with. If
possible, meet a director too, so you know you have direct access to the decision
makers. ABL providers looking to build long-term relationships will be prepared to
spend time to get to know your senior management team and board members at an
early stage. The best relationships will be based on open communications and trust so
that both parties can work together constructively as your business grows.
An Introduction to Commercial and
Corporate Finance
Commercial and corporate finance is actually better known as a structured finance
facility and most recently as “asset-based lending” or ABL. Effectively, ABL providers
are the new boys on the block and look to structure commercial and corporate finance
deals that stretch across a variety of business assets and requirements so that they can
be tied up in neat and flexible packages.
These ABL facilities have become more and more sophisticated over the last few years
and over and above the normal high street bank offerings there are a number of
Finance and Funding Directory 2012
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specialist ABL providers that can put together some fantastic deals for the commercial
operator.
Basically, the ABL provider looks to mix and match between a number of facilities,
generally starting with invoice discounting or factoring. This would then be combined
with other areas of finance such as stock finance requirements, additional cash flow
facilities, plant and machinery financing, and in some cases the provider will even look
to fund the cash flow element of the business to cover salary requirements.
The facility provider first and foremost looks at how the business is operated and breaks
down not only the quality and quantity of the customers that the business has, but also
looks – in detail – at a wide selection of security options against the available assets.
Additional term loans may often be provided; targeted to support the expansion plans
of the business and the facility provider may take additional assets as security outside
of the business itself when available or required.
The combination of the various assets provides for a very competitive interest rate and
charging scale and the facility is normally reviewed and renewed on an annual or
biennial basis. The longer the facility runs often means that the costs and charges are
reduced; however there are penalties on the cost of coming out of any agreed facility
early.
This is an excellent way of tying together a selection of funding options into a neat
bundle which allows the business to cost the facility going forward and in many cases
allows it to expand the funding required to meet pre-agreed growth patterns.
The setting up of this type of facility often involves a complete audit taking place which
includes the valuation of existing assets in a similar exercise to that which takes place
when setting up a factoring or invoice discounting facility.
The ABL provider will often present the company with indicative terms subject to due
diligence, valuation, and audit – and at the point this is completed, will formalise terms
and provide the client with a full contract.
It is often the case that the ABL provider will charge a fee to carry out the audit
regardless of whether the facility is accepted, however it is fairly unusual for the facility
not be agreed if it gets to the stage of a due diligence exercise.
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This type of facility is now considered to be one of the foremost and most flexible
opportunities for finance and funding for small, medium and large companies alike.
It has certainly been embraced by the finance industry and the differing levels of
sophistication that now exist in providing the type of facilities offered, makes for a
truly competitive option for all.
Data sample
Sample of information from the Commercial and Corporate Finance directory:
Ahli United Bank (UK) plc, 35 Portman Square, London, W1H 6LR, 0207 487 6500,
http://www.ahliunited.com, [email protected]
Barclays Bank plc, 1 Churchill Place, London, E14 5HP, 0207 116 1000,
http://www.barclays.com
Centric Commercial Finance Ltd, 69 Park Lane, Croydon, Surrey, CRO 1JD, 0208
603 2900, http://www.centriccf.com, [email protected]
For the full directory of companies in the area of Commercial and Corporate Finance
please see The Finance and Funding Directory 2012/13
(http://www.amazon.co.uk/dp/0857192205).
Finance and Funding Directory 2012
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Banking Finance
Traditional high street business banking facilities
Finance and Funding Directory 2012/13
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Tollers – Funding for SMEs in their
time of need
The recession shows no sign of abating. The financial squeeze upon every business
gets tighter and tighter. With constraints on liquidity, SMEs need to be aware of the
funding options available to them.
The financial product that will be the most appropriate for an SME is not always
apparent. It is important to consider the practical, legal and tax efficiencies of each of
the funding options before taking the plunge.
The first step
The first step for your SME before any decision is made on an appropriate type of
finance is the production of a sound and detailed business plan. The key for every SME
is preparation. Having an acute awareness of your industry and the commercial
pressures of the environment it practices in are a must. If there are gaps in an SME’s
knowledge of its own market, these will be exposed. Inevitably, that means a
disadvantageous position when it comes to obtaining finance.
SMEs need to ensure that any start-up costs associated with a new enterprise or
product line are considered and that there are enough capital reserves in place to cover
projected expenses. It is increasingly difficult to predict how quickly customers are
going to settle their invoices – and, unfortunately, as the depressing economic climate
continues to prevail, whether they will pay at all.
The funding options
There is a range of funding options available, each with differing advantages and
disadvantages. Here are some of the more popular ones for consideration by an SME:
Friends and family
Depending upon the size of facility required, turning to friends and family in an hour
of need can be seen as an attractive option, with the possibilities of relaxed repayment
terms and no interest.
However, one should never underestimate the ability of even the strongest relationships
to crumble under the pressure of a financially struggling business.
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With times being hard, do not be surprised if funders from friends and family look to
become involved in the running of the business. Any perceived interference or loss of
control can result in dispute between the parties and a sudden demand for repayment.
This is why it is imperative, even if the funder is a relative or a close friend, that both
sides seek independent legal advice in the drafting and negotiation of an agreement to
govern the loan being given. Even the most simple and straightforward agreement for
the lending of finance should be backed up in writing. Where equity is offered in return
for the loan, an agreement to cover the relationship between the shareholders is a must.
Debt finance
The bank is ordinarily the first port of call for a business and a well-managed overdraft
provides capital for everyday expenses incurred by an SME. Following the banking
crisis, the reluctance of banks to provide or extend such facilities has been well
documented. Even so, provided an SME can demonstrate a good borrowing history, a
sound business plan and balance sheet, banks are beginning to show a greater
willingness to lend.
Inevitably, before a bank is willing to enter into a loan, an SME will be expected to
demonstrate its ability to repay the loan. This is where your first step in creating a
detailed business plan will be vital.
Even if a bank is satisfied and willing to lend, the terms on offer will almost certainly
be far less attractive than the business was used to and in some cases prohibitively
expensive. Further, SMEs and owner managers should be alert to disadvantages and
contingent risks arising out of a bank’s willingness to lend. By way of example, these
are likely to include:
• being locked in to a rigid repayment schedule
• penalty clauses for late payment
• facilities that are repayable on demand
• requests of directors to provide personal guarantees.
It is vital that, before entering into any agreement, an SME ensures the terms on offer
are reviewed by a legal professional. SMEs need to be fully aware of the impact on the
business and the personal liability of interested parties should they be unable to
maintain repayments. Depending on the circumstances, it is likely that the bank will
insist on an SME taking such advice before it is willing to lend.
With such constraints on liquidity, the arrival in the money market of lenders willing
to provide short-term loans of up to £10,000 in as little as 15 minutes might present
Finance and Funding Directory 2012/13
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another option where limited funds are required. But be warned. Compound interest
rates are likely to be extortionate and the lenders in question will insist upon the
directors of the SME providing personal guarantees. With interest compounding at
estimates of roughly 280% per annum, the potential liability of directors is sufficient
to deter most. Having said that, there is a market for such products otherwise they
would not exist. Anyone considering entering into such an arrangement should have
its terms and the terms of any personal guarantee scrutinised by a legal professional.
Debt factoring and invoice discounting
Debt factoring and invoice discounting provide another alternative method of raising
finance.
Debt factoring involves the selling of invoices to a factor. The factor pays an advance
on all approved invoices. The factor then works on behalf of the business, managing
the sales ledger and collecting money owed by customers in respect of the invoices.
Once the customer pays an outstanding invoice, the factor will release the remaining
balance less any fees that are payable to the factor.
However, SMEs should be aware that the factor will not risk bad debts and will often
seek to reclaim the money advanced to the SME if a customer does not pay.
Invoice discounting is a similar way of drawing money against approved invoices. The
difference with factoring is that in an invoice-discounting arrangement the business
retains control over the administration of its sales ledger. In return for giving such
control to its customers, the invoice discounter will expect the SME to demonstrate
the quality of their sales ledger systems and procedures.
Equity finance
Equity finance involves the raising of share capital from external investors in exchange
for a share in the business.
In the main there are two options as far as providers of equity finance for SMEs are
concerned:
1. venture capitalists
2. business angels.
Equity investors such as these differ from lenders as they do not ordinarily seek fixed
interest or repayment terms. The return to the equity investor can be expected to be
Finance and Funding Directory 2012
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paid in dividends, and these will be dictated by the performance and profitability of
the business.
However, due to the risky nature of the investment, SMEs should anticipate the investor
to expect a higher potential return than a bank would require or one might expect to
see in more secure forms of investments.
Business angels
A business angel is ordinarily an individual or a syndicate willing to invest in a high-
growth business in return for an equity stake and some control.
The investments on offer tend to be smaller in character than those offered by venture
capitalists. Business angels will usually be attracted to a business that is in the early
stages of development or an established business that is looking to grow. The business
angel will want to take some control of the business and will offer their own expertise
and knowledge in order to assist in growth.
Clearly, one of the major advantages of investment from business angels is the
experience, skillset and valuable contacts that they ought to bring to the business. They
are also attractive to SMEs because they are likely to take their investment decision
quickly and offer greater flexibility to the SME in terms of the facility offered. The
downside, of course, is the inevitable loss of control, possible interference and the exit
plan.
Venture capital
In contrast to business angels, venture capitalists will be looking to invest larger sums
of money in return for a significant shareholding in the business.
A start-up business is very unlikely to be attractive to a venture capitalist so should
not expect to be the recipient of this form of investment. Venture capitalists will usually
be looking for businesses that are established and performing strongly. Current
performance alone, however, will not be enough to attract a venture capitalist. It will
be necessary for the business to point to anticipated future growth through a strong
business plan before investment is considered.
Similarly to a business angel, a venture capitalist can bring a wealth of experience and
knowledge and ought to be willing and able to assist with business strategy.
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Having said that, just as with a business angel an owner of an SME needs to consider
the effect of the influence of the venture capitalist over its management, the loss of
control both immediately and in respect of future strategy, the dilution of the existing
shareholders’ stakes, the exit plan of the venture capitalists and the issues that the
business will face as a consequence. Furthermore, there is no getting away from the
fact that a substantial amount of management time can be spent in locating the right
investor for the business.
Transactions involving a business angel or a venture capitalist must be validly
completed and will involve significant amounts of legal input. Relevant and robust
legal advice is a must for any SME considering entering into these types of investments.
You can rest assured that the investor through retained lawyers will be looking to drive
a hard bargain and the support of your own legal advisor is of critical importance to
the process. Your lawyer will be required to protect your position and interests and to
ensure that any required share allotment is successfully undertaken, a robust
shareholders’ agreement is in place to govern the relationship with the incoming
investor and the security and loan note documentation is drafted in the best interests
of the SME.
Although times are tough it is not all doom and gloom. There is a willingness to lend,
but as an SME you have to accept that competition for funding from other SMEs is
more intense; and even if you are successful, that investment is likely to cost you
considerably more.
For those SMEs that can demonstrate a sound balance sheet and a well-constructed
business plan, funding options remain available. As ever, there are equity investors still
in the market looking for those prized investment opportunities.
So it’s tough but if you have a sound business and look for the right source, SME
funding is available. It’s just a question of selecting the right option.
An Introduction to Banking Finance
Finance and funding provided through the banking institutions is by far the most well-
known of financial sources available to the commercial business or the entrepreneurial
individual.
Traditionally, a bank will offer everything from company overdraft facilities through
to short, medium and long-term loans. The overdraft is still pretty much flourishing
and in regular use, however options such as Factoring and Invoice Discounting are
Finance and Funding Directory 2012
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increasingly being offered as alternatives by the banks as a more flexible way of
providing cash flow facilities.
Typically, the following different types of finance and funding facilities are available
from the banking community:
• Overdrafts
• Bridging Finance
• Receivables Funding including Factoring and Invoice Discounting
• Term Loans
• Asset Finance and Leasing
• Commercial Mortgages
• Fixed Asset Loans etc
Most of these facilities will be covered in the introductions to different sections in this
directory; however, it is useful to cover the two most popular lending areas that banks
are well known for: the Overdraft, and Term Loans.
The Overdraft
This option is usually arranged alongside normal existing banking facilities and many
companies utilise this for their short-term cash requirements. Overdrafts are normally
low cost, and more importantly, highly flexible. A bank manager would normally look
to agree a preset facility which is renewable annually and there is usually a fixed charge
for setting up this facility at the outset, of around 1% of the total facility value.
Interest is paid on the amount of money drawn down on a daily basis which is normally
charged at a certain percentage over the prevailing Bank of England Base Rate – usually
making this a much cheaper option than a short, medium, or long term loan as the
balance or advance you are paying interest on should go up and down over the monthly
cycle of the business.
Unlike other facilities such as Factoring or Invoice Discounting, or even a Term Loan,
there is generally no cancellation charge for coming out of the facility. The overdraft
is normally very quick to arrange and can itself be extended to meet additional short-
term requirements.
The overdraft is normally secured against the businesses assets as well as personal
guarantees from the directors and even a debenture charge over the director's personal
assets such as their house.
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There are other types of overdrafts which are considered to be unsecured, however
these are increasingly rare and usually only apply to low-level advances or limits on
the overdraft.
The interest rate applied to an overdraft is always variable so you do have to be very
careful when assessing the true cost of the facility, especially if the bank base rate or
interest charge becomes volatile.
The overdraft itself is repayable on demand, which basically means the bank can ask
for the overdraft to be repaid immediately without having to give any commercial
reason whatsoever. A forced repayment or withdrawal of the overdraft facility is
unlikely unless your company gets into financial difficulties, and in most cases the
lender will look to reduce the facility over time to allow the borrower a sensible
timeframe to repay the debt. Should an organisation, however, be adjudged to be a
high financial risk because of, for instance, an unforeseen commercial event, it may
be the case that the lender will ask for immediate repayment.
It is best to utilise an overdraft facility in conjunction with a mixture of loans and if
possible Factoring or Invoice Discounting, however a bank will – as a general rule –
reduce your overdraft facility should you start using other cash flow solutions.
The overdraft is without doubt the best known, and in the past the most well used
method of providing short-term funding for your business, but the director or
individual needs to keep a constant eye on the overall cost of the facility making sure
that they are taking advantage of other more cost-effective options available.
Term Loan facilities
These are generally utilised for the acquisition of assets or longer term capital
requirements or even start-ups.
The banking institution will advance a set amount of money over an agreed timeframe
either on a fixed or variable interest rate dependent upon the asset value and the
prevailing base rate.
There is normally a charge of setting up the loan which can be added to the total
amount borrowed and paid by monthly intervals over periods of between one and ten
years. In some cases the term of the loan will be measured against the longer term
depreciating value of the asset concerned, and may require a deposit, so the amount
of the advance by the bank leaves them in a position where in the event of a default
they can sell the asset and recover their money.
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In certain cases it may be possible to negotiate a short period of time or a repayment
holiday at the beginning of the loan to help ease the burden of the repayment.
As stated, interest rates can be fixed or variable, so you do have the option of working
out exactly what the repayment costs will be and incorporate these in your financial
forecasts. Generally the loan is not repayable on demand; however there are some
occasions where this can be the case, e.g on much larger loans, and the company will
be required to provide ongoing financial information to the bank to keep them
appraised of its performance. There may be additional penalties should the company
miss a payment or break other conditions that were laid down by the bank at the outset.
In most cases there will be additional security required in the form of personal
guarantees or indeed debentures or charges over other assets. There may also be
penalties for repaying the loan early: normally expressed as a percentage of the total
value of the loan.
The bank will usually want a full cash flow forecast and supporting evidence that you
will be able to make the payments for the loan out of cash flow. They will also require
valuations on the purchase price of the item for which you require the loan, along with
indications of what its value will be in terms of depreciation over time.
Bank Facilities in General
There are increasingly more and more different types of banks and facilities available
in the marketplace. These range from the traditional high street banks through to
independent, private, and specialist banks that operate in areas such as Islamic
banking – which is consistent with the principles of Sharia law – and other banks that
specialise in sectors such as charity, healthcare, education and ethical banking.
Some banks also specialise in providing facilities which are totally internet-based and
have no high street presence at all.
The banking community is becoming increasingly wide in its offerings and has now
moved into other areas such as pensions, mortgages, insurance and life cover, however
the core values of the banks still remain and that is to provide short, medium and long-
term banking and loan facilities for commercial organisations and private individuals.
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Data sample
Sample of information from the Banking Finance directory:
ABC International Bank plc, Arab Banking Corporation House, 1-5 Moorgate,
London, EC2R 6AB, 0207 776 4000, http://www.arabbanking.com
BACB (British Arab Commercial Bank), 8-10 Mansion House Place, London, EC4N
8BJ, 0207 648 7777, http://www.bacb.co.uk, [email protected]
C. Hoare & Co., 37 Fleet Street, London, EC4P 4DQ, 0207 353 4522,
http://www.hoaresbank.co.uk
For the full directory of companies in the area of Banking Finance please see The
Finance and Funding Directory 2012/13 (http://www.amazon.co.uk/dp/0857192205).
Finance and Funding Directory 2012
39
Property Finance
Long term property finance for all types and classes of property
An Introduction to Property Finance
Commercial Property Finance has – particularly for new property developments –
proved to be very difficult to acquire in recent years. A lot of the main high street banks
have shied away from funding the larger property developments given that values have
dropped massively, however there are still some organisations with an appetite to
provide this type of funding.
Property funding is usually broken up into several sections which include:
Commercial, Residential, and Sale and Leaseback. In the case of Commercial and
Residential new builds, the funder will often require a reasonably sized contribution
towards the building programme , the same applies to land acquisition – and certain
targets are often set for drawdown of the agreed funds: such as planning permission;
completion of the foundations; and signoff of the project as a whole.
It is often the case with new builds that the lender is able to be more flexible in the
terms they offer if it can be demonstrated that there is an initial demand or appetite
for the purchase of parts of the new build, and that deposits can be acquired.
Sale and leaseback for both commercial and residential properties has become very
popular – especially where significant portfolios are being built up to generate viable
rental returns over a sustained period of time. Usually lenders will advance between
60% and 70% of the estimated value of the property and will also take into account
the amount of rent that has been generated over time.
In addition to the traditional institutional lender, there are a lot of investment
consortiums, high net worth individuals, and other independent lenders looking for
quality opportunities to fund. It is, therefore, well worth casting around the marketplace
with a suitable information memorandum to see how big an appetite there is. There
are also many builders and construction specialists who are very willing to enter into
a joint-venture partnership to build a property – especially if the land is already paid
for. Again, it may be possible to find a construction offer on the back of a delayed
payment agreement with the joint-venture building partner.
Finance and Funding Directory 2012/13
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On existing properties where perhaps the commercial business wishes to release funds
on property that it already owns or partly owns, the option of a sale and leaseback
agreement can prove to be very useful. Selling the property to an institution and then
agreeing to lease or rent it back over an agreed period of time for a set amount of
money can release significant funds for the business. Any lender in this area will be
looking at the rental covenant to ensure that the business or individual will be renting
the property over time, and it is a good idea to employ a specialist solicitor to ensure
that you are not tied into any contract that has owner’s clauses which may disadvantage
you in the future.
There are still plenty of organisations, institutions and investors prepared to lend on
commercial and residential property and specialist companies that will look to provide
sale and leaseback facilities. The market, however, has tightened somewhat in not only
the percentage that it will lend against value, but also in their charges and interest rates.
The lenders will be particularly keen on establishing not only the market price of the
property but also the sale price they will get in the event that they have to sell quickly
to recover their money. This usually leads to a much lower percentage that they are
prepared to advance, however if additional security can be given this amount can be
greatly increased.
There are specialist property brokers available in the marketplace who know all of the
companies and the conditions that they tend to apply. A good place to start is with an
organisation called the NACFB (the National Association of Commercial Finance
Brokers) who operate through a strict code of practice and have some very experienced
members who will be able to assist. The use of a specialist lawyer is also advisable when
looking at sale and leaseback options and specific contracts.
Data sample
Sample of information from the Property Finance directory:
Aareal Bank AG, 38 Lombard Street, London, EC3V 9BS, 0207 456 9200,
http://www.aareal-bank.com, [email protected]
Bank of Cyprus, PO Box 17484, 87 Chase Side, London, N14 5WH, 0845 850 5555,
http://www.bankofcyprus.co.uk, [email protected]
Catalyst Securities Ltd, 20 Ralli Courts, West Riverside, New Bailey Street,
Manchester, M3 5FT, 0161 838 3888, http://www.catalystsec.com,
[email protected]
For the full directory of companies in the area of Property Finance please see The
Finance and Funding Directory 2012/13 (http://www.amazon.co.uk/dp/0857192205).
Finance and Funding Directory 2012
41
Trade Finance
Trade and transactional funds, global trade often utilising instruments such as
letters of credit
An Introduction to Trade Finance
Trade Finance instruments are used all over the world and the most common example
of this would be the standard Bank Letter of Credit. Basically, Trade Finance allows
the purchaser of a product to provide a guarantee to the manufacturer or supplier of
the product that they will be paid once the goods have been shipped and/or received
at the point of delivery.
Trade Finance is often utilised along with factoring or invoice discounting and is
effectively finance to assist a company in paying for goods and help with cash flow.
There are many specialist companies in the marketplace, such as the large high street
banks and many factoring and invoice discounting companies have a specialist Trade
Finance and Funding Directory 2012/13
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Finance Division which will be linked in with the factoring and invoice discounting
facilities that they are already providing.
In many cases credit insurance will be required to ensure that should there be any
problem with the goods on arrival, or a delay, or the goods are damaged or lost during
transit, that the Trade Finance House would be guaranteed to receive back the monies
that it has advanced.
Trade credit insurance can be expensive and often relies upon the credit rating of the
manufacturer, supplier or agent concerned, so in some cases it can be difficult to
obtain. However, the Trade Finance House may structure a particular deal where the
goods are checked onsite and a part payment is made, and then the goods are checked
again on delivery and the remainder of the funds are released.
In many cases the Trade Finance House will effectively take ownership of the goods
for the period of time that they are advancing the money. When the goods are received,
checked and delivered, they will then release title, deducting interest and charges
accordingly.
The combination of utilising a trade finance facility and mixing this with a factoring or
invoice discounting facility can make for a very powerful cash flow solution for a
commercial business that is either importing or exporting. Problems in the past have
occurred with issues arising from the credit insurance having been reduced or withdrawn
due to market conditions, and a few years back there were a number of instances where
some of the larger credit insurance houses pulled out of the market altogether.
There are today quite a number of participating insurers and the best method of
putting together a package is to approach the Trade Finance House direct: they will
arrange for the funding facility and also the insurance.
Set up properly, a trade finance facility can really enhance a company’s ability to
increase its turnover levels and profitability. Undoubtedly, the key to this facility
working is the quality of the goods being provided – it is therefore necessary to ensure
that at all stages the safety and integrity of the goods are monitored rigorously, so that
on receipt, there are no problems with quality or the need to return the goods.
It is very important that both the buyer and the seller are fully conversant with the
conditions of the Trade Finance contract and know precisely what the penalties are in
the event of a problem or delays in repayment of the facility. If this facility is used
effectively, it is an excellent way of addressing cash flow problems and as a result,
increasing profitability.
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Data sample
Sample of information from the Trade Finance directory:
Atlas Credit, PO Box 249, Shipley, West Yorkshire, BD18 4WQ, 0845 230 4414,
http://www.atlascredit.co.uk, [email protected]
Bank of London and the Middle East, Sherborne House, 119 Cannon Street, London,
EC4N 5AT, 0207 618 0000, http://www.blme.com,
[email protected];[email protected]
Conance Ltd, Hatherley House, 15-17 Wood Street, Barnet, Hertfordshire, EN5 4AT,
0208 449 4141, http://www.conance.co.uk, [email protected]
For the full directory of companies in the area of Trade Finance please see The Finance
and Funding Directory 2012/13 (http://www.amazon.co.uk/dp/0857192205).
Finance and Funding Directory 2012/13
44
Bridging Finance
Short term property finance normally on a ‘closed’ basis, i.e. with exit confirmed
via sale or refinance
An Introduction to Bridging Finance
Bridging finance is a very well-established and well-known form of finance facility. It
is normally utilised for the property and land acquisition marketplace where funds are
required for a very short period of time to bridge the gap between the placement of a
deposit and securing a mortgage facility.
Typically a bridging finance facility will be put in place for a period of between three
to six months and in very extreme circumstances, up to a year. Charges tend to vary
considerably and it is without doubt a very expensive facility, normally attracting
between 1.5% and 3% per month in interest, plus facility charges and take on fees.
There are usually two types of facility: one which is referred to as an ‘open bridge’, and
the other as a ‘closed bridge’. The difference between the two is that with the closed
bridge, repayments or the sale of a property have already been agreed through a third
party, thus guaranteeing the repayment of the loan.
Whilst this facility is a very flexible form of finance it attracts severe penalties if the
term of lending is exceeded and in the event of default, the interest rate charged on a
monthly basis rises exponentially.
Normally the amount of the facility will be expressed as a percentage of either the market
rate or a forced sale rate. With the forced sale rate this can be based on a 90-day auction
value of the property which is significantly below what the market rate would be.
There can also be early repayment charges of around 1% so it is important to ensure
that you get right the period of time that you require the facility for.
Bridging finance houses can normally react very quickly to provide the funds required,
which is especially useful in the case where you are looking to acquire property in an
auction environment. Facilities can be pre-agreed, thus allowing the purchaser to work
within a given budget.
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It is very important to note that these facilities are for short-term use only and if entered
into they can prove to be totally unsuitable for medium or long-term requirements
because of the high costs involved.
Data sample
Sample of information from the Bridging Finance directory:
Affirmative Finance, 7-9 St James Square, Manchester, M2 6XX, 08701 123 111,
http://www.affirmativefinance.co.uk, [email protected]
Bespoke Bridging Finance Ltd, PO Box 62, Stanmore, Middlesex, HA7 3QB, 020 8954
3484, http://www.bespokeloans.com, [email protected]
Cheval, Victoria House, 49 Clarendon Road, Watford, Hertfordshire, WD17 1HP, 0844
800 3200, http://www.cheval.co.uk, [email protected], S
For the full directory of companies in the area of Bridging Finance please see The
Finance and Funding Directory 2012/13 (http://www.amazon.co.uk/dp/0857192205).
Finance and Funding Directory 2012/13
46
Equity Funding
Direct Investment Instruments
Finance and Funding Directory 2012
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Asclepios Bioresearch – New sources
of life science and biotech funding
How did we get to where we are?
Where has all the life science and biotechnology funding gone? The level of investment
available today is greatly diminished relative to even five years ago. What has happened
to create such a capital drought? Were bad investments made? Almost certainly. Have
losses been incurred? Without a doubt. Were valuations and revenue projections over
optimistic? Clearly yes. Were the wins big enough? In a few cases, yes.
As the Spanish philosopher George Santayana noted: “Those who cannot remember
the past are condemned to repeat it.” In short, for today’s demanding economic trading
conditions, as well as the challenges of the future, a better way to raise capital and invest
must be found. That clearly raises a difficult question: is there a better way?
What are the alternatives? There are two distinct sources of alternative private equity
capital available in the UK.
The first alternative
The first source is wealthy private individuals (termed ‘high net worth individuals’ or
HNWIs by the UK financial regulator) who are increasingly stimulated by the capital
gains potential of private equity within their overall financial portfolios. Many are
bored of the endless debate about the merits of added value active fund management
versus lower cost index tracking. Many such individuals have a very clear
understanding of what they want to achieve (after all, that is probably a large part of
what has made them wealthy in the first place) and have sought out specialist financial
advisors that equally understand the gains potential of private equity.
This is the difference between what is termed wealth creation and wealth preservation.
Private equity offers the potential for very significant returns and HNWIs have been
found to be comfortable with holdings of between £250,000 and £2.5 million (or more)
in projects that offer the potential to return five or ten times their capital over short to
medium time periods.
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Turning £250,000 into £2,500,000 in a tax-efficient manner is true wealth creation that
could otherwise take a lifetime with the FTSE100 or mid-cap holdings. However, this
becomes exponentially attractive to high net worth individuals and their advisors when
a private equity transaction also offers a negative outcome hedge. This is a combination
that has historically proven to be challenging to provide, however it is a core focus of
Asclepios Bioresearch.
So what exactly is an HNWI? In order be classified as an HNWI a person must have
in the 2011/2012 tax year either a gross income of more than £150,000 and/or
investment assets of more than £500,000. Such individuals represent less than 2% of
the UK population, according to recent data. Americans or individuals that file a US
tax return are prohibited from investing into UK centric offers, regardless of their
income or asset wealth.
The second alternative
So what of the second alternative source? This is profitable companies trading within
the UK paying UK Corporation Tax. Such companies can be both ‘high net worth
companies’ (a company with called-up share capital or net assets of more than £5
million, or £500,000 if the company has more than 20 members) or simply profitable
UK-trading companies, listed or private.
For such companies, investment into biotechnology and life sciences intellectual
property can enable the company to achieve a range of objectives. For example, more
and more companies are committing to significant CSR (corporate social
responsibility) policies. Asclepios has already enabled a number of companies to make
significant investments into intellectual property that is in accordance with their CSR
policy.
Equally, a company could seek to hedge its trading activities. For example, a company
that makes certain food products could seek to invest in anti-obesity drugs.
Fundamentally, the potential profits of such an investment could enable the company
in the future to make significant corporate donations to charities or indeed found their
own charitable foundation. However, finance directors need not panic – such an
investment can also make hard commercial sense, since, if the investment is correctly
structured, it can also offer the company a deduction against UK Corporation Tax.
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An Introduction to Equity Funding
Raising funding for a business utilising Equity Funding, or if you prefer – the selling
of a proportion of the company’s ordinary shares – is a well tried and tested method.
The amount required and indeed the size of the company concerned will ultimately
dictate the amount of equity that will have to be forfeited in exchange for the required
funds.
If you’re a small company seeking relatively low levels of funding, it can prove to be
quite expensive in terms of the amount of shares (equity) that you will have to give
away to raise the money, and in most cases the proportion of shares offered up will be
calculated on the perceived and actual value of your company. So, in other words, the
less valuable your company, the more equity you will have to give up.
For the middle or larger sized company, issuing equity to fund growth or the takeover
of another business is a well-established practice. Listing the company on one of the
recognised stock markets such as AIM or the Full Market will require the assistance
of a Nominated Adviser (NOMAD) and also a regulated broker. Both of these are
highly experienced and will be licensed to carry out the share issues and will assist
with identifying potential investors and the production of a prospectus or information
memorandum. Such a flotation is very heavily regulated and normally quite costly to
instigate, therefore it is only usually undertaken to raise significant sums of money for
the business.
In the case of a flotation, monies can also be raised prior to the flotation and these are
referred to normally as pre-IPO funds. Special conditions are attached to these pre-
IPO funds and allow for additional returns for the funder to reflect the level of risk
that is involved if the flotation does not go ahead.
For the smaller company there are lesser markets which are equally less regulated from
which smaller sums can be raised, and the cost of doing so is much less than going for
a main market flotation.
A private placement or funds coming from individual investors without a flotation
taking place can often keep costs down. The most regular form of equity investment
tends to come from a number of different sources which include: venture capital
houses; investment trusts; investment consortiums; or high net worth individuals. In
many cases these types of investment will utilise a mixture of debt and equity funding
where the debt is repaid over a fixed amount of time with the capital sum payable at
the end of the loan facility and interest being paid on a quarterly or annual basis.
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Venture capital and private investment has become much more widely available and
the level of equity demanded has always been reflected in the perceived risk or upside
that the equity investor can expect.
The issuing of new shares is also a mechanism by which a company can look to raise
funds to buy out other organisations, and it is quite a usual practice for a company
seeking to acquire a competitor to offer up a proportion of its own shares as payment
for the acquisition.
There are various classes of equity shares that can be put into play and these include
anything from preference shares, through to preferred ordinary shares and many
variances of the same. It is absolutely essential for the business intent on raising funds
via equity investment to take detailed professional advice from specialist accountants
and lawyers; and the issue of valuation should be addressed right at the beginning to
ensure that the level of equity funding sought can be raised against a reasonable level
of equity shares to be sold.
It is a general rule of thumb that the earlier a company seeks equity investment, the
more costly it will be, given that the value of a company at an early stage is generally
quite low. However, in the case of an innovative product or similar it can very much
be the case that a venture capital house or other equity investors will consider investing
large sums of money for a relatively small proportion of equity, gambling on the fact
that the product and the company will become extremely valuable over time.
Equity investment is not to be taken lightly because you are effectively giving away
(selling) part of your company. Throughout the lifespan of a company it is often the
case that you can borrow and repay money many times over during a period of the
company’s growth, however once you’ve given away shares in your business and sold
your equity it is very difficult to undo that action.
Data sample
Sample of information from the Equity Funding directory:
AAC Capital Partners, 1 Carey Lane, London, EC2V 8AE, 0207 187 3000,
http://www.aaccapitalpartners.com, [email protected]
B.P. Marsh & Partners PLC, 2nd Floor, 36 Broadway, London, SW1H 0BH, 0207 233
3112, http://www.bpmarsh.co.uk, [email protected]
Cabot Square Capital LLP, One Connaught Place, London, W2 2ET, 0207 579 9320,
http://www.cabotsquare.com, [email protected]
For the full directory of companies in the area of Equity Funding please see The Finance
and Funding Directory 2012/13 (http://www.amazon.co.uk/dp/0857192205).
Finance and Funding Directory 2012
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Mezzanine Finance
Layered finance often used in conjunction with Commercial and Corporate
transactions, is typically subordinated finance sitting behind Senior Debt in terms
of security ranking. Higher risk and higher costs.
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An Introduction to Mezzanine Finance
Mezzanine funding tends to mix traditional debt facilities with an additional facility
when the company achieves certain pre agreed performance targets. The easiest way
to understand how this is structured is to think how banks will normally lend money
upon which they will be charging an agreed amount of interest: equity funders or
investors make their return from the company in which they have been investing, in
obtaining growth and enhanced profitability – at which point they will look to sell
their equity investment as their point of exit. With a Mezzanine facility, the lender
combines the two, charging interest and taking an equity position as well.
Most providers advancing Mezzanine finance facilities tend to charge a much higher
than normal level of interest, reflecting the level of risk involved. The major difference
between Mezzanine finance and the normal type of loan facility is that the lender will
have an involvement in the equity of the business, thus sharing any upside or success
in the future.
Mezzanine finance is not usually available to the smaller business as it is normally
utilised as part of an overall funding strategy and can prove to be quite expensive. The
key providers of these funds are usually the bigger banks, venture capital funds, some
investment consortiums, and specialist restructuring investment houses.
The popularity of Mezzanine finance has grown over recent years, as it can now provide
many businesses with the ability to raise money for specific projects that the Company
has identified in its overall strategy. Mezzanine finance is increasingly being used to
fund targeted Management Buy-outs, Management Buy-ins, Buy-ins/Buy-outs
(BIMBOS) or just for a straightforward acquisition.
Undoubtedly Mezzanine finance facilities provide commercial businesses with funding
that would normally be unavailable through existing financing options due to the
nature of the proposal and the attached risks. The facility can be structured in a number
of ways which can include subordinated debt, preference shares or indeed convertible
instruments.
The Mezzanine finance facility is often described as an investment solution and is
regarded as ranking after normal credit facilities, but before equity investments.
The main advantages are that it provides funding that is normally not available to a
commercial entity and provides a debt/equity solution. The ordinary shareholding of
the company is not usually affected and as such no dilution takes place. Repayment
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terms are normally quite generous as the lender will be seeking to enhance the value
of the business over time to benefit from the equity part of the deal. All parties
ultimately benefit from both the company’s growth and success.
Data sample
Sample of information from the Mezzanine Finance directory:
Alliance Fund Managers Limited, 2nd Floor, Exchange Court, 1 Dale Street,
Liverpool, L2 2PP, 0151 236 4040, http://www.afm.uk.com, [email protected]
Finance East Ltd, Unit 1, Basepoint Business Centre, 70-72 The Havens, Ransomes
Europark, Ipswich, IP3 9SJ, 01473 722910, http://www.financeeast.com,
[email protected]
For the full directory of companies in the area of Mezzanine Finance please see The
Finance and Funding Directory 2012/13 (http://www.amazon.co.uk/dp/0857192205).
Finance and Funding Directory 2012/13
54
Turnaround Funding
Private investment funding utilised to restructure distressed companies
Finance and Funding Directory 2012
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RCapital – When a bank says “no”,
ask a turnaround firm who says “yes”
Most businesses go bust within the first five years. They often do so because they have
grown too quickly and they haven’t enough cash to support the working capital that’s
needed for the business. Companies don’t normally fail through a lack of profits; they
fail due to a lack of cash. The crisis moment often comes when businesses find they
have insufficient funds to meet basic requirements such as payroll.
Common problems
Business failure frequently takes companies by surprise. A business owner may have
large contracts in place and feel he or she is in a growth situation. But suddenly the
cash dries up and the owner thinks ‘why has that happened?’ The two key areas of
weakness are over-trading and cash flow management. All the preventative actions
that need to be taken stem from there.
Struggling businesses have one thing in common; They find it difficult to accept the
scale or depth of the problems they face. Entrepreneurs who start businesses tend to
be natural optimists. They assume the bad things will always get better. It’s not in their
nature to think that their businesses could slip from underperformance to distress and
eventually into crisis.
So what should be done? For any company in a vicious circle of decline where
efficiency, quality and service levels are suffering, some significant changes need to be
made. If you see stress in your business, you don’t want to wait for a winding-up
petition to take action. You need a plan B. There are several critical ingredients to
include in any ‘rescue and remedy’ plan.
Plan B
The first step is to take action. Start by cutting overheads; and cut costs hard. Talk to
your customers, talk to staff and talk to suppliers. Share your plans: what you are going
to do and how you plan to do it. You want to avoid losing the confidence of suppliers
by breaking commitments and customer confidence through delivery issues. Keep the
channels of communication open and talk to people who can come in and help.
Any plan B should include some form of advice. It doesn’t cost anything to seek input
from a turnaround specialist. On some occasions businesses can survive on the
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recommendations of a turnaround expert alone. It can be just as satisfying to watch a
firm take onboard recommendations and come out the other side, as when a
turnaround specialist is brought in to roll up its sleeves to help make it happen.
The majority of businesses in trouble leave it too late to ask for help. More businesses
could be rescued if advice was sought early. Waiting too long to take action not only
reduces the solutions available to a business to ease their pain, but a delay in getting in
the experts can also lead to the least profitable outcome for all involved.
Find the right help
But how do you decide which firms to talk to for advice and which to partner with? In
recent years the number of turnaround firms has mushroomed and it’s hard to
differentiate between them. Their websites sometimes use confusing jargon; firms
appear to do much the same thing.
Firstly, size does matter. An impressive 99% of businesses in the UK are SMEs, and the
chances are that your business is one of them. SME turnarounds are the declared
speciality of firms such as RCapital. Some turnaround specialists are focused on
nurturing growth in small under-utilised operations. Others like RCapital prefer to
revive and rescue companies in distress.
Do your research
There is a tendency for turnaround firms to become bigger as they become more
successful. And as they become bigger, so do their clients. Turnaround specialists
become less and less able to take on board the smaller type of SME. Make sure that
the turnaround specialist you fancy has not only a good track record but also a genuine
dedication to the aims of smaller businesses.
There is little sectoral specialisation. Most turnaround firms say they will consider
working with businesses in most industry sectors. Almost all firms these days are
involved with retailers of one sort or another.
There is not much geographical specialisation among the firms, though some claim
that there is.
Turnaround firms tend to fall into two camps. Those that offer ‘consulting’ or advice
on how to tackle complex business issues, and those (like RCapital) that ‘take action’
Finance and Funding Directory 2012
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by putting money into a business and work alongside management to quickly fix the
problem areas. Work out what type of turnaround solution would work best for you
and your business.
What to look for
Speed of transaction is often important and here smaller firms have the edge. Some
raise money directly from high net worth individuals and can therefore be more nimble
and flexible in making investment decisions. Those with large, formal funds backed
by institutions require more thorough (and time-consuming) due diligence procedures.
In turnaround situations, speed is of the essence. Such situations often involve
businesses which need help in days not weeks.
Look at the people doing the deals. They make a difference. Turnaround practitioners
tend to come from one of two backgrounds – either they have been in the
banking/financial-services industry, or they’ve worked for a big accounting firm where
they have specialised in corporate turnarounds and insolvency.
Some practitioners tend to be entrepreneurial and opportunistic; others are more
focused on the numbers they need to reach. It’s as well to meet a few and shop around.
Ask yourself if you think you can work with them as a business partner for a year or
two. Then be aware that they will probably want to make substantial changes to your
business – not all of which you will approve of. But they will argue that they are
necessary for the business’s survival. And they may well be right.
Ask them for references and talk to others they have helped. It’s all about finding the
firm that works best for you – not just the terms of the transaction but also the
personalities in the firm and the fit with your business. Each of the firms will have a
way of working that reflects its founder’s personality. So choosing the right partner
can be about personal choice and a sense of trust. At the end of the day, the best
guarantee of success is success. Look at the firms’ track records. Where have they added
significant value?
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An Introduction to Turnaround Funding
Turnaround funding is one of the relatively new areas that enables businesses to obtain
support in their search for a suitable funding opportunity.
Turnaround usually involves the combination of advisory support as well as – in most
cases – access to financial support. The reasons for a company requiring assistance
with turning around its business fortunes can vary greatly, from insolvency through
to being too successful and over trading.
Depending on the quality of the business and the viability of the marketplace there are
now specialist organisations that can provide specific consulting advice and
professional support. These organisations can usually provide the necessary funding
to turn the business around and bring it back into profitability – normally in exchange
for an equity position in the company.
Utilising turnaround professionals is vital when making key decisions to revive the
fortunes of a business, and even more so when you consider that in most cases this
will be the last opportunity that the board of the Company will have in recovering their
position.
Equally, the fund or institution providing an equity or loan facility will want to ensure
that the strategy employed and agreed is fully monitored and implemented in line with
that agreed strategy, especially as time will be of the essence and mistakes at this stage
would be disastrous.
We have listed a selection of organisations in the market specialising in this type of
funding, but the sector appears to be growing rapidly and it undoubtedly provides
facilities to stressed businesses and their owners that did not exist a few years ago.
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Data sample
Sample of information from the Turnaround Funding directory:
4R Business Recovery, 50 Broadway, London, SW1H 0RG, 0800 90 20 123,
http://www.4Rbusinessrecovery.co.uk, [email protected]
Business Rescue, Crown House, Home Gardens, Dartford, DA1 1DZ, 01322 424594,
http://www.businessrescue.co.uk, [email protected]
Century 2000 Services Ltd, 1 Royal Exchange Court, Queen Street, Droitwich,
Worcestershire, WR9 8LA, 01905 799 956, http://www.century2000.co.uk
For the full directory of companies in the area of Turnaround Funding please see The
Finance and Funding Directory 2012/13 (http://www.amazon.co.uk/dp/0857192205).
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Support organisations
Essential service industries to debt and equity providers
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Touch – The role of the IP in business
recovery
The business of insolvency is often misunderstood by SMEs and larger businesses alike.
The role of the insolvency practitioner (IP), in particular, is not usually associated with
helping to turn struggling businesses around.
Of course, there are cases where an IP is brought in, effectively, to dispose of the assets
of an already failed business. But more than a third of all cases referred to IPs involve
a recovery or turnaround scenario, where the IP works hard with a business and its
management to put it back on its feet, protecting its staff and its future.
The secret, however, is in acting fast, and calling for help early; directors need to
recognise the warning signs and be proactive in seeking support. Thinking that their
difficulties have gone unnoticed by the bank or other creditors could end up costing
them dear.
Early intervention
The reasons why early intervention is an advantage are many and varied. Generally,
early intervention ends up being considerably more cost-effective: it is tough trying
to save your business when problems have been left unresolved or allowed to drift for
too long, and the closer you are to insolvency, the more you may find yourself paying
to advisors and turnaround experts.
In up to 90% of turnaround attempts, most of the effort concentrates on financial
reconstruction, including debt restructuring, to keep the company solvent. The
financial element is only one part of the jigsaw, however. What the IP will also look to
address are the underlying operational problems that have contributed to the
company’s present difficulties. Indeed if the operational side of the business is not
restructured – and difficult decisions taken early (for example, to outsource non-core
skills/people) – then a collapse may be inevitable.
To be most effective, this restructuring is best conducted within a solvent business,
where cash is still available, preferably in close collaboration with your main creditors.
Waiting for a company to hit a cash crisis and for the cash to dry up is too late. Using
the existing resources that are in place, the IP will work in close collaboration with the
business, its creditors and other essential stakeholders to achieve a successful result,
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whether renegotiating with landlords or the Crown for time to pay outstanding debts
or looking at more substantial methods of refinancing. (It is of course important to
look at all areas of credit control to minimise the impact of late payment and maximise
cash flow.)
Specialist services
Not untypically, working with an IP will mean drawing in experts who deliver
‘specialist’ services to help get a business back to performing at its full potential.
Forensic experts, for example, can undertake independent business reviews (IBRs),
helping businesses to re-examine their finances, and advise at every stage of the
business restructuring and turnaround process. Used effectively, a professional forensic
specialist can significantly improve the outlook of an underperforming business,
enhance cash flow and aid business growth.
The services of property experts may similarly be called upon to deliver the full
spectrum of general practice surveying advice. This may include valuations,
commercial and residential disposal and acquisition services, rent reviews, lease
renewals, compulsory purchase advice and dispute resolution – all of which go to
support the objective of recovery and putting a business back on the right track.
Recoveries experts, meanwhile, can be deployed to provide onsite investigations and
so identify positive ways and means to treat the company’s sales ledger. Expert teams
will conduct a full onsite overhaul of a company’s financial records and books,
uncovering all the necessary information to provide a true picture of the sales ledger
position and provide practical help and assistance where required in reconciling
missing payments and keeping the cash flowing through a business. From an
operational perspective, experts can also work with clients in designing and
implementing credit control systems and procedures where they do not currently exist,
or improving upon systems already in place.
IPs can also help with finding alternative methods of cash flow funding, in Touch’s
case specifically through a dedicated broking division, Touch Financial, which looks
to source the right solution for whatever the refinancing requirement. The commercial
finance options may include factoring, invoice discounting, asset finance, commercial
mortgages, trade finance, accountancy services and debt recovery packages – all
depending on need.
Indeed businesses and business owners could benefit from throwing away any
preconceived ideas they have of the insolvency profession.
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The secret of survival
It is completely understandable when a business owner takes the stance of Mr
Micawber in Dickens’ David Copperfield – “something will turn up” – but it usually
doesn’t. Most owners only see the folly of their ways when it is already too late.
Seeking help early is tough, especially if your company is still winning business and/or
turning a small profit, but sticking your head in the sand like the proverbial ostrich is
simply not an option. To avoid insolvency, companies must do more than simply think
in terms of ‘crisis management’. Instead, they need to be working, towards profit
improvement through a timely operational and financial restructure while they are
still solvent. Those are the companies that will survive.
An Introduction to Support
Organisations
Readers might think it is unusual that we have included a section dedicated to Support
Organisations, however we believe that the support these organisations provide greatly
improve the chances of successfully obtaining the funding finance package that you –
the company or individual – are seeking.
Naturally, everyone wants to ensure that they have the best possible chance of success
when making detailed applications for funding, and – in our opinion – the inclusion
of a “savvy” accountant or a specialist legal practice is almost essential.
Whilst we appreciate that these are additional costs which perhaps a business may not
have budgeted for at the outset, we believe the costs are a necessary requirement to
help ensure success, and also to ensure that you are getting the best possible deal from
the organisation you are approaching.
This is also not about producing contracts and clever figures, but it is confirmation
that your strategy and planning are correct. Having a good, qualified, sounding board
working with you, to ensure that your reasoning and planning stands up in the eyes of
others, is essential.
Of particular interest are the services provided by Insolvency Practitioners or – as they
like to be called – “Corporate Recovery Specialists”. In many cases they are able to assist
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financially stressed companies in restructuring their organisations and putting forward
a compelling case for existing or new funders to restructure and support the business.
Often when it seems that there is no route forward and that the business has to go into
liquidation these corporate advisers can come up with some unique solutions which
enable a full restructuring of the business and allow for a viable turnaround over time.
It is often worth spending a few minutes outlining your proposals and your overall
strategy to support professionals – in most cases they will happily give you a couple of
hours of their time at no cost to see how they can assist, which in our opinion is a very
worthwhile exercise.
It is our strong belief that any cost at the outset will be more than paid back in the long
run and will greatly enhance your chances of success – so take this tip and at least have
a chat.
Data sample
Sample of information from the support organisations and professional advisors
directory:
Allen & Overy LLP, One Bishops Square, London, E1 6AD, 0203 088 0000,
http://www.allenovery.com
Baker & McKenzie LLP, 100 New Bridge Street, London, EC4V 6JA, 0207 919 1000,
http://www.bakernet.com, [email protected]
C-Tech Innovation, Capenhurst Technology Park, Capenhurst, Chester, CH1 6EH,
0151 347 2900, http://www.ctechinnovation.com, [email protected]
For the full directory of support organisations and professional advisors please see The
Finance and Funding Directory 2012/13 (http://www.amazon.co.uk/dp/0857192205).
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The Finance and Funding Directory
2012-13
The companion product to this guide is The Finance and Funding Directory 2012/13
which, for each area of finance and funding highlighted in this guide, includes a
directory of companies that can provide that finance. For more information, or to buy
the directory, please visit: http://www.amazon.co.uk/dp/B009ZV0ON8
http://www.harriman-house.com/financeandfundingdirectory2013
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