As featured in BQ Magazine (Summer 2013)....
There is a feeling in the market that business finance isn’t flowing, and I can understand why that is the view in certain quarters, but there are deals being done by businesses with the right ingredients.
The banks are willing to undertake financing for the right businesses where their portfolio balances allow them to, but in an age of new accountability these deals prove more difficult and slower than ever to complete.
There has been a polarisation of fortunes in the economy for some time. Stronger businesses able to borrow, retain cash and invest in a UK market that, whilst flat in terms of growth, still shows opportunities for business to build market share at the expense of competitors by diversifying and by looking overseas. Businesses with more constraints on cash, less attractive balance sheets or simply those with the wrong type of assets can find it very difficult to access finance, and are being dragged back by their lack of liquidity.
Capital that can move quickly has never been more valuable, and investors that are close to the market now, and can live with taking some measured risks, are seeing great short term returns. It has always been the case that cash is king, but in the last two years we have seen capital becoming ‘magnetic’ and attracting more funds around it and growing rapidly.
Some of this is due to the fact that investors are backing propositions behind funds that have a model to undertake swift but deep due diligence. Often the security taken by these funds can be executed in hours or days, where banks need weeks but savvy lenders are ensuring their loans are covered with ample guarantees and debentures as well as fees that would have been seen as very lumpy ten years ago.
Some private individuals and angels are seeing their capital multiply because it is placed and returned rapidly with a handsome dividend, either way the result is that what pools of capital there are in the market, whether private or in funds, are growing quickly.
If a business is looking for funds and liquidity today, where should it be looking to ensure it can attract some of this capital? That depends on a number of factors including; urgency, security, opportunity and returns.
Where directors can leverage their own security, most are already heavily-committed as the recession(s) and liquidity drought has seen an extended period of hardship for many businesses.
Even where businesses and individuals are asset-rich, the process of securitising and lending is often prohibitive. Bridging, whether or not it is formally called that, is big business solving substantial problems and providing some lenders with great short term returns.
Contrary to some widely held views banks are still open for business, just not all banks and all business. If you have a strong trading business with a good management team and business plan then there are banks who are actively seeking to place lending that will meet their lending quotas.
There are areas of business, such as commercial property that are still a harder proposition to fund than others such as technology or manufacturing. However, there are still deals to be done if you have a plan that stands up in a sector that isn’t a no-go area for banks, and if you have the time to invest in some possible dead ends.
Asset based lending
ABL has seen a rebirth over the last two years, and what was once seen largely as a ‘lender of last resort’ has grown in respectability, relevance and activity over the last three years. Traditional ABLs specialised in leveraging assets, the more liquid the better, to bolster cash facilities for a percentage charge.
This market is still active and invoice discounting and factoring is still a very good source of short term funding and working capital for some firms. If you have a blue-chip debtor book, or large amounts of valuable stock or raw materials, these are particularly suitable assets to leverage. Banks as well as specialist lenders are easy to find in Yorkshire, and competition is fierce for this type of lending, so shop around before you take the first deal.
In some cases, ABLs will also lend against more fixed assets, land, plant or machinery. But the less liquid the asset and the more difficult it is to value or establish a market for, the less attractive these will be to lenders as security.
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