finance

Finance further up the food chain…

I like to think this blog is for scale-up owner managed businesses… so here’s a few aspects of finance further up the food chain that may be useful to know as your capital requirements change as you grow…

And since I like to give a few ‘insights & angles’ I’d rather not list all the types of finance available… just pull out a few interesting points…

Bullet Loans

Fancy a capital injection where you make no interest payments and no repayments of capital until the end of the loan… say 3 or 5 years later ?

That means you get to use all of the cash to grow your business… and pay absolutely nothing back for 3 to 5 years…

… and even then you can ‘roll it’ into a new loan…

They’re called Bullet Loans… and larger companies can get them from high street banks… so why not you?

I know a big name bank doing Bullet Loans for guys like you… if you’re looking to borrow £500k or more… and it’s one of those things where the more you’re trying to borrow the easier it can be to get

Private Equity

PE investment companies come in all shapes and sizes… with different specialisms and interests… and for me they differ from Venture Capitalists by liking less speculative opportunities…

PE outfits will gravitate towards companies & teams already well on their way who’d like to unload some (or all) of their shares to professional investors who’ll help drive continued growth…

Once you’ve got EBITDA (Operating Profit adjusted for Depreciation) around the £500k mark, picking up interest from PE outfits gets easier… and if you can show a route map to trebling EBITDA in the next 3 years it’ll definitely get them excited…

Venture Debt

I love finance… it’s an incredibly innovative space… full of developing financing options you may not know of… like Venture Debt

While PE houses gravitate to EBITDA producing investment opportunities… Venture Debt providers will be there for zero profit companies… early stage growth companies… and even start-ups…

I include it in this blogpost because you can’t get Venture Debt for just a few grand… it’s serious money for serious growth prospects…

The debt terms can be very flexible… ranging from traditional repayment models to interest only with balloon payments… but it comes with some rights to convert debt into equity so the lenders can become shareholders in the company under certain conditions…

The lender gets traditional security levels (charges over company assets etc) but the extra risk of lending to riskier companies is compensated for by equity warrants (chance to own shares in a growing company)

Personal Guarantees

As you take in more capital the Personal Guarantees you might be asked to make can get a bit big on you…

… you may not mind PGing a £20k overdraft facility… but PGing a £600k loan might make you & those back at home wince…

You can now insure against a PG being called in… and as the PGs get bigger this option may well suit

But if insurance doesn’t appeal… and if the PGs are called in… there are specialist Lawyers who negotiate with the banks for you and drive the amount you have to pay up waaaaay down… often with a no gain/no pain fee structure…

Loans against your shareholding

Rare as rocking-horse poop… but as your company grows and attracts outside investment you may find yourself locked in…

… you can’t sell your shares… can’t earn money outside the business… and your wages etc may be capped…

And to add to the frustration… your shareholding in your company may be your biggest financial asset… but you can’t use it !

Or can you?… there are people out there who’ll let you raise money using your shares as security.

Interesting times for Finance

Even if none of the above works for you…  the point is… different sizes of companies, at different points in their growth cycles have lots of different options…

… and the financial innovation at the moment can seem absolutely dizzying with oodles of new offerings…

… so…

… at the risk of invoking the ‘Chamberlain Curse’… why not make the most of living in interesting times… ?