In Focus Risk
Matching the need
Understanding the true cause of the funding requirement can allow you to decide how best to fund it
Martin Keighery Head of broker partnerships, YesGrowth
martin.keighery @
yesgrowth.com
The past few years have seen an incredible growth in financing options for UK SMEs, with a variety of new funders, mechanisms, and people entering the, hitherto predictable world of business funding. From challenger banks to technology-led crowd funding platforms – and all points in between – it feels like there has never been such a broad choice available to business leaders when thinking about raising debt for their firm. But does such a vast array of choice
make it any simpler for the potential borrower to choose the right avenue for their requirement? Indeed, has the potential borrower
always fully considered what the underlying cause of their need might be – is debt even the appropriate choice?
Insufficient cash Within the alternative-finance sector, a significant proportion of applications arrive at funders’ doors with the purpose noted as ‘for working capital’ or simply ‘cashflow’. In a practical sense, this may be entirely
accurate – that is to say, the business needs some cash to assist liquidity within its operating cycle. However, this need for some additional ‘working capital’ is often not borne out of a lack of existing appropriate debt support – there is invariably a sensibly positioned overdraft or invoice-finance line already in place – but a more reactive need for which the true underlying cause is not, perhaps, entirely known. This is where a strong finance team or
an attentive and experienced broker can be crucial to assist the borrower – as the more the business understands what is causing the need, the better placed it is to define the most appropriate solution.
June 2017
lWhy is the business finding itself more illiquid? l Are debtors taking longer to pay, and, if so, what is driving this? l Are suppliers reducing terms, if so, why? l Are margins suffering due to enhanced competition or wider macro events? l Are currency pressures a factor? l Are the owners simply removing too much cash each year? l How long is the pay-back on this new contract, and, therefore, what is the optimal duration to seek finance against it? Increasingly we see ‘causes’ being
mis-financed – either too short a duration
of accompanying loan, or too long. Both can cause ongoing pressures within a business, as the ability to match the finance to the asset remains key. Taking a five-year loan for a requirement such as short-term cashflow might feel enjoyable initially, as the repayments feel small. But what about moving forward, when the same short-term requirement inevitably returns, and the business is still carrying debt from a year ago, perhaps making it more difficult to raise finance again?
Increasingly we see ‘causes’ being mis-financed – either too short a duration of accompanying loan, or too long
www.CCRMagazine.co.uk
Conclusion Always consider the underlying cause of the requirement, and the best match to fund it. This may be a single-invoice trade. It may be a term loan. It may be adapting your terms of trade. It may be equity. Business finance has innumerable moving
parts and, with the right advice and approach, there is an active market out there to accommodate needs. Just make sure you are matching any answer to the right question! CCR
39
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52
