Raising business finance in a challenging market

Despite the challenging economy, plenty of debt funding is still available – though lenders are scrutinising applications more carefully. Owen Malton of DSW Debt Advisory offers some tips on how to find the right funding and secure the best possible terms.

Despite the challenging economy, there is still plenty of debt funding available – though lenders are scrutinising applications more carefully. Owen Malton of DSW Debt Advisory offers some tips on how to find the right funding and secure the best possible terms.

  1. Choose the type that is best for you

There are many different types of debt instruments, and what is right for one business may not be right for another. Even within the same industry, a company with a strong debtor book and another with a large amount of stock may have different financing requirements. There are a lot of factors to consider, such as what growth stage your business is at and what the funding is for.

  1. Present your case carefully

In a challenging economic and geopolitical landscape, lenders will carefully scrutinise a request for financing, whether it is for an existing or new customer. They want to be sure the business can still meet its repayments if things don’t go according to plan.

Consider how best to present your case and anticipate the questions they may ask.

Companies may need to be more cautious in their projections and be able to validate them as funders will apply rigorous stress tests.

Emphasise the quality of earnings, diversity of income streams and the recurring nature of revenues – not only long-term contracts but also strong customer relationships and repeat orders – as lenders will take comfort from these.

  1. Allow plenty of headroom

Ensure sufficient headroom within your funding package allows for unexpected bumps in the road – for example, project delays, cost overruns or a drop in customer demand. Also, think about the impact on working capital in an ongoing inflationary environment.

  1. Provide security where possible

In general, the more security you provide, the lower the cost of a loan. To achieve the best rates, consider what assets you have that could be used as security, such as property, debtors and stock as well as plant and machinery

  1. Shop around

In addition to the high street banks, there continues to be a plethora of finance available, with some 175 different debt funds plus challenger banks looking to deploy their capital. An experienced debt adviser will help you navigate the market, compare options, and obtain competitive market terms.

  1. Consider hedging

After a long period of low or zero interest rates, successive rate rises caught many businesses unawares. In times of uncertainty, with any loan agreement, it is advisable to consider the impact of interest rate rises and whether to use hedging to manage the risk.

Owen Malton, Partner

DSW Debt Advisory