In the current economic climate many business owners and finance directors are facing funding shortfalls. With the banks seemingly constrained in what they can offer, particularly to underperforming businesses, there is a need sometimes to look beyond mainstream banks for solutions. So what are the options?
Where there is an appetite to lend it is imperative the business owner presents the case clearly and concisely. Whatever the banking situation, a specialist adviser will have probably seen it before ad know the appropriate strategy to adopt going forward. They will be able to assess the business plan and advise on the best course of action. Insolvency practitioners generally maintain strong links within all the banks and financial institutions and work closely with them to find solutions. Often a bank overdraft ca be replaced by a combination of factoring, confidential invoice discounting, trade finance and other forms of asset based lending.
Short term asset backed emergency funding can be secured over freehold property, plan and equipment, stock, debtors or work in progress: in fact, anything with a realisable value. We have access to a syndicated fund of £5m with lending usually in the region of £50,000 to £150,000. We have introduced bridge funding in a variety of cases to preserve equity in financed assets. It comes at a cost but can prove to be a short term lifeline.
Turnaround business angels
Sometimes raising new equity is the only answer: but this can be very challenging for an underperforming business. There are "turnaround business angels" with the appetite to invest in financially distressed situations. These are experienced investors who have strong managerial or professional backgrounds often with troubleshooting or turnaround experience. Nearly always investors participate in the management of the company, restructuring the business through new finance, enhancing the management team and re-engineering business practices. The very nature of the potential risks involved mean that investors in turnarounds will usually require a controlling interest. However, for the owner forgoing a majority shareholding in a business that will then have prospects this can be a better option than struggling on only to see the business ultimately fall.
Perhaps, however, the best form of funding is from within - reducing overheads and disposal of unnecessary assets will help the business in the short term and provide a more sustainable foundation for the future.
David Wood is a partner at McTear Williams & Wood, call 01473 218191 or visit www.mw-w.com
East Anglian Daily Times
3 November 2009