Breaking Through the Refinancing Wall: Alternative forms of finance
WITH access to finance restricted by the recession, what alternative forms of funding are available for businesses and who is active in the lending market? In the fourth in a series of articles TheBusinessDesk.com, in association with business advisors and accountants Grant Thornton and asset based lender Crédit Agricole Commercial Finance, reports.
IT’S fair to say that UK banks have taken a bit of a kicking during the recession.
They have undoubtedly reigned in their lending practices, both in the retail and commercial sectors, a strategy which was being deployed even before taxpayers became embroiled in the running of banking giants such as Lloyds and Royal Bank of Scotland as the downturn bit.
However, their argument has been that they will only lend to viable businesses and that nationalised or part-nationalised operators have to think of taxpayers when providing facilities to businesses.
But all might not be lost for those seeking funding and finance from traditional lenders, according to Ian Marwood, corporate finance partner at Grant Thornton in Leeds.
“There is no doubt that mainstream banks are looking to increase their lending,” Mr Marwood (pictured) said. “We are seeing this with the high profile private equity deals in the spring all attracting substantial debt packages.
“However banks are demanding that the quality of the credit should be high. This means that only businesses with strong business plans, well presented and structured, will receive a sympathetic hearing.
“Interestingly, many private equity houses are completing deals providing the debt elements of transaction structures are from their own funds and refinancing with banks is at a later stage.
“In this way they are seeking to remove the banking risk from the transaction to improve deliverability. This is seen by many as a competitive advantage in winning mandates.”
But for those being turned away from the traditional routes of bank lending, what options exist for access to finance?
Ian Flaxman (pictured right), strategic director at Crédit Agricole Commercial Finance, the UK asset based lending (ABL) arm of the Crédit Agricole Group, says: “Of course, I am arguably biased, but I see the asset based lending market as being an important alternative form of funding as more traditional sources continue to be difficult to obtain and increasingly expensive.”
Asset based lending (ABL), in its simplest form, is any kind of lending secured by an asset. If the loan is not repaid, the asset is taken.
When loans are made to businesses under ABL they are typically tied to inventory, accounts receivable, machinery and equipment. However, assets can include a trademark or intellectual property.
Mr Marwood agrees that ABL is becoming an important method of finance.
“The last 12 months has seen a resurgence in ABL with particularly the independents benefiting from the general levels of concerns about mainstream banking appetite.
“We have seen this for example in KBC’s refinancing of Standard Wool (UK) earlier this year, providing growth finance for a successful company experiencing higher levels of activity.
“Many ABL’s are aggressively targeting the refinancing market arguing that they are able to provide more extensive and flexible structures than the traditional banks.”
Mr Marwood is also seeing activity from high net worth individuals.
“High net worth individuals are an interesting source of equity in many cases. With unattractive returns from cash assets, many are looking to place reasonably significant tranches of cash into high return ventures.
“For larger transactions the logistical difficulties of arranging multiple investors can be prohibitive however organisations exist to overcome this such as Hotbed and the co-investment schemes of some private equity houses.”
