A lot has changed in a year. There are winners and losers across a number of sectors with some businesses still in survival mode. With the hope offered by a mass vaccination programme, many business owners are now thinking about the future. There may be opportunities to recover lost ground. There may be new ways of doing business. Whatever the future looks like, if a business is looking to grow once again, that growth may well need external funding.
Business Matters: Raising finance (by debt or equity) to fund growth in a post Covid world
Howes Percival writes:
2020 brought huge disruption and, as is often the case in a crisis, many funders pressed the pause button in order to assess what the pandemic meant for them and their customers. Uncertainty will continue into 2021, and the effects of Covid may be long lasting. Nevertheless, we know that 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 which has not fully utilised any government backed loan scheme that is 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.
Throughout much of 2020 many banks were rightly focused on looking after their existing customers and less interested in new opportunities. The government backed loan schemes referred to above 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.
However, applications for debt finance will be carefully scrutinised. It is important that businesses seeking to borrow have well thought out and robust business plans. Independent advisers can help with preparing business plans and applications for finance in order to maximise the chances of approval.
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 to identify what type of debt structures are best suited to your growth plans.
It is often the case that business owners like being in control of their own destiny, but equity funding shouldn’t be dismissed.
Whilst 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. A common theme when speaking to equity investors is that they are open for business and are important for the wider economic recovery.
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 (hopefully) we 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 Covid 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 about ‘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.
As with debt finance, speaking to a corporate financier or the business’ accountant or lawyer is a good starting point to explore options available.
Whilst 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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