Borrowing money to grow, diversify or enter new markets is fundamental to the success of most businesses. Yet, many can be wary of lending and the processes involved with it. Having helped businesses with their funding needs for over 25 years, I’ve come across the same obstacles time and time again. Here, I will take a closer look at these and how businesses can overcome these to accelerate growth and reach their objectives.
Many of us were brought up with words ringing in our ears about the need to avoid getting into debt. I regularly speak to businesses who are proud to have got as far as they have without the need to borrow. But how much further might they have got by leveraging the capital that debt markets can offer?
Companies generally have much fewer assets than they did in the past. Typically, offices are leased and the real value in the company goes home every night.
Hence, many owner managers feel that they won’t be able to borrow money because they don’t have anything to borrow against. Or they fear that a loan would involve committing their home as collateral.
The good news is that there are plenty of unsecured options in the debt market for loans with no charge over assets, no onerous debentures, warrants or personal guarantees.
Before the financial crisis, owner managers knew exactly where to go to get a loan: their bank. The financing options were relatively limited and the relationship was already established. Now, it’s a different picture. As SME bank lending receded, many forms of alternative lenders have filled the vacuum.
A positive outcome of this change is increased competition between lenders, driving down pricing and creating a huge amount of choice. However, it can be tricky to navigate the maze of lenders and deals out there.
The cure to all this complexity is expert advice. Business advisers, brokers and other financial advisers can help businesses cut through the maze of options to find the right lender, at the right rate, at the right time.
While businesses are constantly changing and adapting to their customer and market needs, some can be much more reluctant to change their lending arrangements. But do those arrangements still suit your needs? Is the pricing competitive?
I’ve seen businesses still grappling with the original funding that they set up many years ago, with extra lines added, extended and renewed over time so that the administration, as well as the high initial pricing, is creating a drag on the whole business.
The value of debt restructuring expertise is to help you identify and arrange the right deal, based not only on current market offerings, but also a deep understanding of your business and future plans.
Finally, it’s worth rounding off with some of the benefits and opportunities that debt can help you access. I’ve seen companies use debt of as little as one to two times their annual cashflow to successfully scale up, diversify, update technology and employ the key people they need to shore themselves up for the medium term.
While taking on debt should never be taken lightly, leveraging others’ capital can provide the key to unlocking and accelerating growth, helping you get where you want more quickly and successfully.
Colin Burns is Director – Debt Advisory, at corporate finance advisory firm Shaw & Co
Originally published May 21 2019 , updated February 24 2020