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The challenges of raising finance

With the recession now firmly behind us, there are a number of funding challenges as companies switch from a cost or survival focus to a high growth focus.

The key to success is ensuring that each business has the right amount of the right finance based on their individual circumstances. Getting it wrong can result in financial difficulties at one extreme to a significant missed opportunity cost at the other.

For businesses with heavy working capital requirements Asset Based Lending (“ABL”) solutions have come of age in the last 10 years.  No longer are they purely seen as a solution for struggling companies.  Instead they represent an opportunity to grow funding lines in proportion to sales growth whilst minimising cash servicing costs. Caution still needs to be exercised in deciding if they are right for you, as these funding lines reduce if trading takes a dip or if sales are lumpy.

Cashflow lending, either alongside an ABL or overdraft solution, or on a stand-alone basis, is once again relatively freely available for companies generating EBIT levels in excess of £1m.  Below this level of profitability however the appetite to provide such funding is more limited and therefore fundraising remains something of a challenge.

For a number of businesses, especially those with a low level of tangible assets, it may be necessary also to explore more expensive types of finance.  Such funding can include Mezzanine type loans with higher rates of interest (but often no repayments for 5 years) to equity investments from either individual investors or private equity funding.

Regardless of your industry there should be funding available.  The key thing is to make sure you get good advice early on, so that you can source the most appropriate solution for you.  This advice should include considering the delicate balance between quantum, cost and the cashflow impact of the subsequent servicing costs.

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