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Funding and the new world!
April 2010
Corporate Finance Partner
As the world and his wife are aware the UK economy has exited from the worst recession since the 1930’s. Whilst many commentators believe we have left the old style economics of boom and bust behind the last eighteen months have thrown up many challenges to the UK economy.
The challenges have come in a variety of forms whether they are the increase in competition from overseas manufacturers, increase in the costs of raw materials or increase in price competition.
Our own work over the same period has been focused towards supporting our clients through this period. In approaching our work we have looked to identify the current position of our clients and where they want to be. Through a thorough understanding of our clients plan we have been able to support their business through the worst banking crisis in living memory. Through understanding our clients and their aims we can guide them through the funding market to a proposal that fits in with their strategy.
In looking at funding for a business it is essential to understand what the long term objectives are. The simplest form of finance is likely to be cash invested by the business owner (or the three F’s, Friends Family and Fools) unfortunately this is not always available and therefore businesses must look at third party funders.
Bank funding is likely to be the most prevalent form of finance and under the current government the banks are likely to be pushed towards lending greater amounts.
Whilst the Government has committed significant sums to support bank lending, many institutions are only just settling down after significant restructuring of their operations. Whilst all banks are open for business it will be interesting to see whether the enthusiasm of the people on the “shop floor” is matched by the individuals who sit on the credit committees.
Alongside the high street banks there are a large number of specialist organisations who focus on Asset Based Lending. The benefit of a specialist lender is that they take a different approach to risk and more specifically the risk associated with certain asset types. In certain circumstances this can deliver a more appropriately structured funding proposal.
The majority of bank funding will be secured by assets although in certain circumstances this funding will not be available and therefore businesses will have to enter the world of equity funding. Many people will be aware of the various equity funders whether these are the large institutions such as 3i or local providers such as UK Steel Enterprises or Finance Yorkshire. Following on from the success of SYIF the new intervention fund put forward by Finance Yorkshire will provide around £40 Million of debt and equity funding to the South Yorkshire region. The requirements of the funders are fundamentally different from those of the banks. These funders are investing money on the basis you can grow and provide a sufficient return for the increased level of risk.
In approaching any funding proposition, whether this is the renewal of your existing facilities or taking on new facilities it is important that both you and your adviser understand where, ultimately, you want to go with your business. This will define your strategy and allow your adviser to direct you to the most appropriate form of funding.
As a firm Hart Shaw look to work closely with our clients, developing long term relationships. A fundamental element of our work is gaining an understanding of what our clients want to achieve and ensuring that our services are directed to supporting this aim and delivering added value.
