Yorkshire and North East Dealmakers Guide 2016 - 16

GROWING YOUR BUSINESS ©shutterstock.com 16 Finance for growth Investing in a business is one of the most important ways of accelerating growth. But what investments should be made? And how do you fund them? Insider looks at the options A ccess to capital to fund expansion, operations and projects is critical to an organisation's ability to meet its objectives. Investments might need to be made to buy new machinery, to develop new products, to improve efficiency or to expand ones premises. All these require capital expenditure, working capital finance and careful consideration. There is a bewildering patchwork of funding options to tap into, and choosing the right one is not an easy task. Businesses can reinvest profits or divest or carving out non-core operations. FUNDING BANK LENDING Following the financial downturn in 2008, and the subsequent recession, there was increased bank regulation which has directly impacted on the availability of bank funding. Lending is picking up, but alternative funding options have increased. In fact, the British Business Bank reported that the availability of bank debt has increased for the first time since 2008, while there has also been a surge in private equity and peer-to-peer lending, especially for smaller companies. ASSET-BASED LENDING A provider lends money to a business against its assets - property, plant, machinery, stock and so on. This finance is typically used to fund growth but can also be used for management buyouts, buy-ins, mergers and acquisitions, refinancing and restructuring (although these types of deal will have other forms of finance involved too). Cash flow lending to businesses that have a track record of healthy cash generation over a number of years has become more common. Ian Steward, UK managing director for Close Brothers Invoice Finance, explains: "The term 'ABL' suggests we will only fund against hard assets, but cash flow loans (essentially unsecured and reliant on healthy business performance and profitability) are a growing aspect of what we are able to provide for the right deals." Facilities are often cheaper than other forms of lending, while generating more funds. They are also far less expensive than equity/mezzanine funding, and allow management to retain their existing level of control. But can a lender change the terms of the facility overnight? No, says Ian Steward: "Committed facilities tend to be covenant-heavy. An asset-based lender can react quickly to any changing circumstances of the borrower, increasing limits if the company is growing, and changing advance rates on a temporary or permanent basis were cash requirements to dictate. They are very flexible." CROWDFUNDING This is a way of raising finance by asking a large number of people each for a small amgount of money. This is generally managed online and there is an ever-expanding list of organisations offering this service. The two most common types of crowdfunding are equity and debt. http://www.shutterstock.com

Table of Contents for the Digital Edition of Yorkshire and North East Dealmakers Guide 2016