Finding advice in times of uncertainty

The answer may lie in different providers and sources of finance to ones you may usually use. Although new arrangements will typically incur an arrangement fee, they can also provide the peace of mind that comes with a short-term solution, which may be exactly what your forecast suggests is needed.

When your business is running into difficulties, it’s natural to fear the worst and be anxious about speaking to your lenders or investors. But understanding exactly what your rights as a borrower are is a key place to start.

Typically, whoever you are borrowing money from – your bank, a marketplace platform or other lender – will have signed up to the Lending Standards Board’s Standards of Lending Practice, which explains how you should expect to be treated by a lender.

The Lending Standards Board works to a single, clear remit: to promote fair lending. It wants to ensure that small business borrowers are treated fairly and receive a fair deal from their lender, as set out in the Standards of Lending Practice.

As a business owner, the Standards of Lending Practice is a useful resource for advice and support related to debt finance in particular.

As a business owner, even someone who is experienced in accessing finance, you should always seek independent advice before taking on any product or approaching a finance provider. That independent advice can help you present the case for investment or lending in a way that will increase your chances of success.

Speaking to a corporate finance adviser is a good place to start. In the first instance, your adviser will look at whether debt or equity is most appropriate or most likely. They can then help you identify potential sources for funding and how to approach the lender or investor.

Corporate finance advisory is a professional service that provides advice to businesses on raising debt or equity finance. This can include finance for growth, capital structuring, investment decisions, long and short-term financial planning and the implementation of various strategies.

Corporate finance advisers can also negotiate or assist your business when negotiating with debt or equity providers. As negotiations progress, the advice may change but the adviser will work with your business until the capital is raised.

Often the capital raising can be related to a specific investment decision or a mergers and acquisitions (M&A) transaction. They will help the business to decide whether to pursue a proposed investment, or to pay for the investment with equity, debt, or both.

Corporate finance advice: key facts

• Corporate finance advice is often associated with a firm’s decision to undertake capital investments in plant and equipment or other fixed assets, or acquisitions of another business.
• Corporate finance advice can also help manage short-term financial decisions that affect operations.

ICAEW Corporate Finance Faculty members

The Institute of Chartered Accountants in England and Wales (ICAEW) Corporate Finance Faculty represents member firms that can potentially help your business. Businesses taking advice from an ICAEW member can expect their adviser to adhere to core values, which give you, the business owner, and your management team, confidence in the advice given to you, whatever the circumstances.

If a business already has investors (for example, through angel investors or private equity), then the chances are that it will have access to their knowledge and expertise to help manage bumps in the road.

It’s vital to speak with existing investors at an early stage and again, if you’re looking to raise equity funding to address working capital challenges, the first step should be to seek advice. If equity is the most likely option, then a corporate finance adviser can provide input to the strategy for the equity raise, be it from private sources of capital or from public markets.

The corporate finance adviser will help the management team evaluate the financing alternatives and enter into negotiations with private equity if that is the route being taken. They can also help manage the process if the business is going to public markets.

Seeking further equity investment will generally take longer than debt finance, unless there is a ready and willing investor. You should also consider the impact of giving away a stake in the business to cover normal operating costs, especially in a time of change.

However, your existing investors already have a vested interest in helping your business thrive, so are an invaluable source of not just additional funding but also advice and guidance.

When you approach existing investors who already have a stake in the business, they will want to see that their investment or loan will leave the business with a sustainable capital structure. A corporate finance adviser can also help management assess the impact of any change and help you explore how that will work going forward for the business.

Investors will need to be reassured that any lending repayments, or interest payments to service any lending, are made on time, and that the chance of foreclosure is minimised. Again, a corporate finance adviser will help management assess this ahead of any meeting with an investor and can provide support in any meetings with them.

A debt adviser can help your business assess its cash position and forecast your cash needs.

Initially, their help will focus on preparing your management team for a discussion with your existing lender about the cash position of the business.

The debt adviser will also understand the effect that taking on debt will have on the financial structure of the company. They will be able to identify and access the appropriate debt providers to support the needs of the business, and then advise on the terms on which the debt is being offered.

Other ways debt advisers can support your business:

• Provide guidance if your business needs to refinance existing debt facilities
• Provide guidance on accessing new debt products
• Advise on ways to reduce financial stress within your business
• Support management in raising finance.

Debt financing options include:

• Senior debt: This is the most secure lending your business will have. Usually, you’ll need to use assets like property or plant and machinery as security to access it. If your business fails to repay, the senior debt provider will have a first lien claim – this means they will be the first to be paid if you default. The most common types of senior debt are ‘senior term debt’, which typically involves a lump sum repayment (called a bullet repayment) after a fixed term or a series of repayments in line with an agreed schedule, or a ‘revolving credit facility’, where you can get funds and repay flexibly. Banks and increasingly loan funds will provide these.
• Subordinated (Second lien or junior debt): Simply any type of debt that will not be paid until all senior debt is paid in full. Various types of loans with different priorities fall under the umbrella of subordinated debt, including bonds, mezzanine or vendor notes.
• Unitranche: A blend of senior and subordinated debt from a lender, a group (syndicate) or club of lenders. By combining the two types of debt, lenders spread risk and the borrower pays a blended interest rate, somewhere between the two interest rates that would typically be charged for senior or subordinated debt.
• Public bonds: A public bond is issued by a company in exchange for a loan, which it is obliged to repay at a fixed date. Being public means it can be traded on public markets. Typically, the funds would be used to finance long-term investments, depending on the length of the term of the bond.
• Private placements: A bond, sold to a small group of investors, which is not made publicly available and is not publicly traded.
• Trade finance: Trade finance isn’t strictly a loan but a facility that allows a business to trade abroad by reducing the risk of non-payment by a supplier. There are different variants of trade finance, including letters and lines of credit. Here, the bank will pay the supplier for goods received, rather than lending money to the business trading abroad.
• Supply-chain finance: Where the lender deals with the buyer, instead of relying on the creditworthiness of the supplier. The suppliers sell their receivables at a discount to banks or other lenders, often called factors, getting faster access to money.
• Asset-backed lending (ABL): A blend of invoice finance with funds released against other business assets, such as stock, property, plant and machinery, providing additional capital than invoice finance alone.
• Hybrid securities: A lender takes a mix of debt and equity stakes to blend the investor’s risk.

See also

Where to find the right advice