FINANCE
Raising finance (by debt or equity) to fund growth in a post-Covid world
The hope offered by mass vaccination may give businesses confidence to recover lost ground by investing in growth. But with many firms dependent on access to external funding, Haydon Simmonds and Jahid Ali, banking and finance and corporate partners at Howes Percival, consider some of the issues facing businesses in a post-Covid world.
2020 brought huge disruption and, as is often the case in a crisis, many funders pressed the pause button to assess what the pandemic meant for them and their customers. Uncertainty will continue into
2021, and the effects of Covid-19 may be long lasting. Nevertheless, we know a number of investors (both debt and equity) are also looking forward and ready to provide funding to businesses with growth aspirations. For an eligible business that
hasn’t fully utilised any Government-backed loan scheme
available to it, these are still worth considering. Applications under the loan schemes available – Coronavirus Business Interruption Loan Scheme (CLBILS), Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) – remain open for applications until 31 March 2021. Debt finance under these
schemes may have advantages in comparison to debt raised by other means. One major advantage for CBILS and BBLS loans is that no interest or fees are payable for the first 12 months.
BANKS LOOKING FOR NEW OPPORTUNITIES ONCE MORE Throughout much of 2020, many banks were rightly focused on looking after their existing customers and less interested in new opportunities. These Government-backed loan schemes were deployed by banks and other lenders, and this took up a huge amount of time and other resources. With the position having stabilised for many businesses, and the volumes of new applications for Government-backed loans considerably lower than in spring and summer 2020, many banks and traditional lenders are once again looking at new opportunities.
USE INDEPENDENT BROKERS TO FIND OTHER DEBT FINANCE SOURCES In addition to banks, there are other sources of debt finance that might be suitable for your business. Private funds, specialist lenders and high net worth individuals are all active for the right lending opportunities. If you are struggling to find a lender, independent brokers may be able to help you find funding that you would otherwise not be aware of. Debt finance isn’t limited to
loans. For some businesses, invoice finance or asset finance may be more suitable. Again, independent advisers such as accountants, brokers and lawyers can help you identify what type of debt structures are best suited to your growth plans.
DON’T DISMISS EQUITY FUNDING It is often the case that business owners like being in control of their own destiny, but equity funding shouldn’t be dismissed. While inevitably there was a dip
in venture capital and private equity investments in 2020, the pot of money available for such investments is still there. In fact, as a result of the dip, that pot is bigger than it would otherwise be.
82 business network March 2021 Haydon Simmonds
Jahid Ali
A common theme when speaking to equity investors is that they are open for business and are important for the wider economic recovery.
MORE COMPETITION FOR EXTERNAL FUNDING What is becoming more apparent though is that certain “Covid- resilient” sectors are attracting more interest and therefore the playing field has become smaller. As we hopefully see the vaccine rolled out, that playing field will become bigger. In addition, there are some interesting debates being had on valuations of businesses and how the pandemic period should be factored in. Options available to businesses
looking for investment include venture capital and private equity investment, as well as angel investors. What these options give business owners is potentially the ability to de-risk by selling part of their interest and receiving investment to progress plans. That, in the current climate, may be an attractive proposition. There is often a misconception
about equity investors as “asset- stripping” and overleveraging, and it can scare businesses away. There are all sorts of investors out there with different ideas, thoughts and personalities. If a business is considering equity investment, it is worth speaking to a number of them to see what fits with their plans. While what we are going
through is pretty awful, unlike the financial crisis of 2007/08, there are decent options available for those looking for funding.
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