Fund a business
Perhaps you are looking to raise funds for the first time or maybe you’ve taken your business through this process before. Either way there is a bewildering array of options available to you no matter what you’re hoping to raise funding for.
Click on the questions business owners frequently ask themselves below to see the answer.
- What type of external funding is available?
- How does private equity work?
- How can my bank help?
- Where do I find an investor?
- So what are my options other than private equity or my own bank?
- How will the investor want to be involved in my company?
- How much do different types of debt/finance cost?
- How does the process work?
- Who can help me find the right fundraising options for me?
What type of external funding is available?
There are many types of funding available and the most suitable for you will depend on what you are trying to achieve.
Maybe you are looking for funding to support your working capital requirements, in which case asset backed lending (such as invoice discounting – borrowing against your outstanding invoices), lease finance or an extension to your bank facilities may be your best route.
If you are looking to raise funds to buy another business or take some of your hard-earned value out of your own company, the above sources are still options for you. But you might also be able to draw on leverage finance, specialist fund lending, peer to peer lending or even undertake an equity transaction with a private equity firm.
At HMT, we specialise in advising ambitious entrepreneurs on raising finance and our debt advisory team will be able to discuss your plans for your business, talk you through the funding options which are available to you and advise you on the right course of action to deliver best value for you and your business.
How does private equity work?
Private Equity (PE) firms exist to invest money in growing businesses. Your business may be growing organically and looking for funds to expand via development capital, or it may be growing by acquiring another business.
Private equity firms source their funds from wealthy individuals and large institutions, such as pension funds and insurance companies. Typically a private equity firm will seek to make an investment in your business where you release a proportion of your equity to them, in exchange for cash. You can then use this cash to develop your business or to invest in another company.
Typically a private equity firm will only seek to hold an investment in your company for a short period, typically 3-7 years. Although you release a proportion of your equity in a private equity transaction, this quantum is driven by both the value of your business now but also the potential value following the growth post investment and your business should grow faster such that overall you realise greater value than you originally held.
How can my bank help?
However, it is always good to benchmark and, a specialised debt adviser will be able to compare your banking options with the rest of the market and explain your overall options.
Where do I find an investor?
You may be thinking that it is all well and good that there are many options available to you, but where on earth would you find an investor or lender?
In an ever developing market, understanding what is available and what are the best terms is critical. At HMT we have specialist debt and corporate finance advisers who are up to date with the latest market trends and products available and have many years of advising companies in all stages of development on the most appropriate options.
So what are my options other than private equity or my own bank?
There are many options available to you if you would like to raise funds. Our debt advisory team has a wealth of knowledge and many contacts in the lending market. We can source you funds for almost any project from almost anywhere. Types of lenders we can go to include:
- High Street Clearing Banks
- Challenger Banks
- Niche Financiers
- Peer to Peer Lenders
- High Net Worth Individuals
This wide variety of lender options has opened up a competitive market in recent years but it is about knowing how to present the opportunity to the right group of funders.
How will the investor want to be involved in my company?
A PE investor would hold shares in your company and would ordinarily seek representation on your Board of Directors. As part of their involvement, they will ask to see management accounts on a monthly basis.
A lender’s main involvement is likely to be regular testing of lending covenants. To fulfill this, your lender will ask to see regular management accounts and updated financial forecasts.
How much do different types of debt/finance cost?
Well, there is no simple answer to this question! Costs vary significantly depending on how much you’re borrowing, what you’re planning on using the money for and your own business’ financial track record
Once again, a debt adviser will be able to help. They will look for the best deal on the market for you and try to find you a range of options to choose from at different price points and with a range of flexibility of terms to best suit your needs.
How does the process work?
Once your corporate finance adviser has helped you identify the right funding option for you, the next step of the process is to undertake due diligence. This will include a review of the business’ historical and forecast trading, its financial and legal positions, and possibly an overview on the company’s market.
The exact level of due diligence required can vary, but when external finance is required, this will include detailed financial and taxation due diligence and involve specialist transaction support advisers.