Delay at your peril when it comes to debt

In the present economic and political climate some might baulk at putting more debt into a business.

If, however, your company is in need of capital then delay at your peril, says Mark Taylor.

My sense right now is that in the UK regional market there is a certain resolute spirit, a sense among companies that they just ‘need to plough on’ and cannot afford to hold back any longer. And, as history will tell you, opportunities can always arise out of political uncertainty.

If your business is in need of capital to reach the next stage in its growth story then the good news is that, despite the current climate, there is no shortage of funds willing to lend money with borrower-friendly structures.

Indeed in recent years there has been a massive inflow of capital to the UK, predominantly from US insurance companies and pension funds. As well as feeding through into private equity, much of this has found its way into funds which specialise in the provision of debt rather than equity. Our estimate is that there are more than 150 specialist debt funds, commonly known as direct lenders, with operations in the UK alone.

Capital needs

Such a scenario should be music to the ears of the boss of any mid-market owner-managed UK business (OMB) looking to access cash to grow his or her business through increased plant and capex spending, or perhaps through an acquisition.

In particular, mid-market companies typically have greater capital needs than they can generate from cashflow or via their existing capital base, so as such they can benefit significantly from a debt offering.
Accessing the funds can however be a challenge, not least because UK debt funds are overwhelmingly based in London and are looking for well-prepared memorandums to consider.

“Debt ready”

All of which means that to access funds the borrower needs to prepare themselves properly, which is why engaging early with an independent voice such as a corporate finance house – well before you approach a debt provider – is crucial.
What we possess is market information about which funds might be interested in which sectors and particular situations. We can also help improve a ‘credit rating’ by identifying areas that are important to potential funders such as management information.

Borrowers shouldn’t be fixated on the cost of borrowing either. Debt pricing can alter significantly depending on the sector, product and specific type of funding arrangement. Ultimately, the price of debt should be measured against the potential return expected from the underlying use of the funds raised.

Mark Taylor is International Head of Debt Advisory at Clearwater International.