34 funding your business


Funding your business – the Thames Valley landscape


In the 3 months to November 2013 the Bank of England’s Trends in Lending publication dated January 2014 confirmed the stock of lending to UK businesses contracted by £4.3 billion, writes Richard Lewis, director in Grant Thornton UK LLP’s advisory team in the Thames Valley


This is counter to our experience in the Thames Valley where we see banks and other funders actively seeking opportunities. In this article we consider the funding landscape in the region and how businesses can put themselves in the right position to obtain funding.


We conclude that an increasing range of options are available. However, in our view funding continues to be difficult for smaller businesses and particularly where there is little collateral available. We confirm that getting the basics right is critical in making applications for funding and choosing funding sources in line with strategic need is essential for long-term success.


Overdrafts, debt facilities and trade lines


From a debt perspective the region has strong representation from the major four clearers which have a number of centres and are actively seeking opportunities to lend money.


The banks generally align their teams based on business turnover levels in the following categories: 'business banking' relating to businesses with a turnover of up to a £1 million, 'commercial' from £1m to £25m and 'corporate' above that level. This varies but provides a reference point for this article.


Outside the major four, banks such as Clydesdale, Handelsbanken and Santander are also very much on patch and open for business. In addition, we also have Metro Bank which is expanding nationally at a rapid rate from its start in 2010 aspiring for 200-plus stores by 2020 from 25 now. We currently see Metro Bank as primarily focused on businesses in the business and commercial ranges.


The choice for businesses is www.businessmag.co.uk


also likely to increase on the basis that the divested part of The Royal Bank of Scotland plc properly separates from RBS under the Williams & Glyn brand and the initial public offering proposed in relation to Lloyds TSB Bank plc creates an additional lender. We note the divested part of RBS has been acting autonomously in the market for a number of years.


Lending also continues to be available from the majority of lenders under government schemes such as the Enterprise Finance Guarantee and Funding for Lending schemes, the latter providing a reduction in the interest paid for businesses and individuals.


Asset-based lending


These products became more mainstream following the credit crunch with banks increasingly securing lending primarily against receivables. This form of lending partly bridged the gap left when cashflow loans were no longer generally available.


The market perception of these products has improved over the past 10 years with pricing reducing and funders becoming far more effective in execution and able to provide in some cases a service efficiently integrated with clients systems.


The Asset Based Finance Association’s introduction of the Code for Members in February 2013 has also been much welcomed with increased disclosure requirements.


The major four clearers and certain of the other banks in the region offer lending through asset backed facilities through factoring and invoice discounting, plant and machinery and to an increasing extent stock. Some funders will also provide a small cashflow advance which will tend to be


treated as an overpayment on an invoice discounting line.


In addition to the banks, there is strong representation from independents in the region including Aldermore, Bibby, Centic, Close, Factor 21, GE Capital and Leumi.


There are of course sectors where asset-based lending and receivables finance in particular is not appropriate (eg hotels and nursing homes) and funders will often take a prudent approach to funding export ledgers and the construction sector.


In larger transactions we are also now seeing private equity funding alongside ABLs given pricing will in most cases be lower than cashflow loans.


This is an interesting space to watch as there are likely to be acquisitions of some of the independents by those banks which do not currently have ABL products. A recent example is the acquisition of SME by Metro Bank providing it with a platform to fund receivables. Further transactions appear likely with private equity already holding stakes in a number of organisations in anticipation.


Private equity


Our corporate finance partner, Duncan Lamb advises: “There continues to be strong interest from PE in high-growth potential businesses with some scale and a dynamic management team.”


In addition to the key providers with representation in the region, given our location and its key sectors we also draw significant interest from London- based private equity houses and international interest in deals.


Over the past three to four years we have also seen the emergence of specialist mezzanine funders in the mid- market both supporting PE


transactions and increasingly on a standalone basis.


We note equity funding will not be included in the Bank of England’s lending figures quoted at the start of this article but is included here for completeness.


So why the contradiction?


Whilst there is undoubtedly a strong interest from providers in funding viable larger commercial and corporate businesses, access to funding continues to be difficult in the business banking and lower end of commercial where there is less collateral available to fund lending and particularly where those entities have become highly leveraged in trading through the recession.


Banks are primarily in the market to lend to sustainable businesses that have the capacity to service interest and repay debts over the agreed term and not to lend to prospects more suited to equity investors seeking significant rewards from ownership. Factoring and invoice discounting enables funders to go some way to bridge the risk gap.


There is private funding available, however, it is mainly interested in high growth potential start-ups. We are starting to see crowd funding but that is very much at an early stage. The Government backed


THE BUSINESS MAGAZINE – THAMES VALLEY – FEBRUARY 2014


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