Raising finance for growth
Andrew Hoad, Partner, at asb law explains some of the considerations when raising finance for business growth.
At some point during a company’s growth journey funding will be needed, not only for business as usual outlays but also to support strategic initiatives to realise ambitions for long term sustainability. Most companies’ overdraft facilities are unlikely to support acquisitions and investments on their own and therefore external investment will need to be sourced.
The travel sector in particular also needs to adapt quickly to fast changing market conditions which throw curve balls that can be difficult to manage without the support of accessible funding. The industry has a thirst for innovation which brings its own challenges as traditional funders may be more sceptical about the security of its funding.
A mix of funding options for financing needs should be considered to ensure your company can achieve its growth goals. The more traditional corporate lending options such as bank debt will be familiar to most but they may not always be the most effective, financially advantageous or even an available source of finance to an ambitious, growing organisation.
Growth can be supported by some of the following types of finance:
Banks are often the main source of external funding where security will usually need to be offered. A robust business plan will be needed and interest rates are likely to be a more expensive financing option for smaller and younger companies. In the post-Brexit decision era, banks’ credit teams are becoming more stringent but they will still back good businesses.
Private equity and venture capital
An injection of growth capital from a private equity company will create the dual benefit of finance funding and business partnership expertise with a vested interest in the company’s success. It has traditionally been used to finance a management buy out but more providers are now prepared to offer capital for growth. Many travel businesses are not asset backed businesses but have high potential and therefore remain an attractive mid term investment. With direct involvement in the business, a private equity firm will have greater control but most will allow the management team to get on with running the business day-to-day.
High net worth investors
These individuals may be able to help at early stages of business growth by injecting a substantial sum in return for an equity stake and a place at the board table. It is more likely that these individuals will have experience of the sector and possibly involvement in other sector related companies that can then work together.
For the right company with a clear vision that can be easily communicated the option of crowd funding is becoming increasingly viable. It involves getting many small investments from a large number of people. These investors will typically have no say in the running of the business.
asb law can help your business negotiate with the finance providers and ensure that your growth ambitions do not restrict your current operations and future plans. Legal and tax advice will be needed for financing transactions and we can ensure that you are fully aware of the implications of your finance choices.
You will need to make your business more attractive to external investors just in the way you would if you were seeking to enhance value when getting the business ready for sale. asb law regularly advise borrowers in negotiating with financiers to facilitate business finance, acquisitions, funding development projects and property acquisitions. We also regularly act for banks and asset based lenders on acquisition and structured finance as well as secured lending transactions, so we have an excellent insight into both sides of any funding arrangement.
This article was published in the Travel Trade Gazette on 6 October 2016.
Published: 7 Oct 2016