Attracting debt finance – a free guide for ICAS Members
If you have clients who are looking to fund their business growth and recovery as the economy continues to reopen, debt finance is likely to be a common route for established businesses.
Further guidance, useful links and information on how your clients can prepare to attract debt finance are set out in LendingCrowd’s new resource guide, offering you invaluable intelligence to help ensure your proposal is robust and has the best chances of success:
As you and your clients work together to understand their funding needs and decide their routes to finance, creating a thorough and attractive proposal is key to ensuring the best chances of obtaining competitive finance on suitable terms.
Preparing for the journey
How you prepare to attract finance depends on your audience. Each type of finance comes with its own individual risks and opportunities, and different funders have their own distinct methodologies for assessing proposals. Therefore, it is important to ensure the pitch to lenders is directed appropriately.
Lenders assess the ability of the business to repay the debt over the proposed term and, in broad terms, typically measure profitability and cashflow to determine affordability.
You should clearly indicate the amount of funding you are seeking, the borrowing purpose, and how this will benefit the business. This is your opportunity to bring the campaign to life and should highlight the positives whilst reassuring that reader that your goals are realistic.
Duncan Cassidy, Director of Credit at LendingCrowd, explains: “For straightforward borrowing purposes such as short-term cashflow, the lender will need less information than with a complex transaction, but they still need up-to-date information and a thorough understanding of the borrower’s business. Instead of a business plan, the lender may look for an executive summary, setting out who the key people in the business are and how the funds will be used.”
For more complex transactions, for example purchasing a specialist asset, acquiring a business, or buying out shareholders, the lender will need more information and, almost certainly, look for a full business plan.
Duncan adds: “Regardless of the funding reason, the key is to provide all the up-to-date information at application and to package it so the lender can access it easily. The applicant should supply PDFs of bank statements and two years’ unabbreviated financial statements, ideally no older than 15 months.
“Lenders need to see the financial performance of the business and its transactional data. They’ll also want an understanding of its history – how the business has traded over recent years, where it’s heading, who the key individuals are and why they want the funding.”
The business plan
It is always prudent to have a comprehensive business plan, regardless of whether clients are seeking external finance. A start-up business plan can evolve into a growth plan and will help maintain focus and avoid aimless trading. It will help your clients set measurable and realistic goals, while defining strategies for achieving them. A business plan will also help stakeholders in the business understand its track record, objectives and key components, along with influential external factors.
A business plan should be thorough, yet flexible enough to accommodate changing circumstances, which may create opportunities or challenges. It should also include some financial modelling. This will help identify any funding requirements and capture the predicted financial outputs of future activities. Financial forecasts should also provide the business owners with benchmarks for measuring the success of their strategies.
Early engagement with lenders is recommended to establish whether a proposal has mileage and genuine chances of obtaining finance. This could avoid wasting valuable time and provide an insight into how you should position your proposal.
Keep an open mind, avoiding fixed ideas on how funding may be structured, and be ready to respond positively to challenges to your proposal.
Funders often have a front-facing representative to work with you through the application process. This might be a Relationship or Business Development Manager, who will manage the relationship between you and the funder throughout the transaction, guiding you through the process. They can provide an early steer on how funding might work and help you shape your proposal, highlighting what areas to focus on, offering it the best chances of achieving success.
As described in our previous Resource Guide, The Funding Landscape, there are many non-bank lenders with a strong track record of providing flexible and essential finance to businesses. Many are supported by government agencies that make capital available for debt finance to SMEs via these platforms. One such example is Scottish fintech lender LendingCrowd, which provides flexible loans to SMEs and is supported by Scottish Enterprise, both as a shareholder and a provider of funding.
Non-bank lenders and other similar platforms are often labelled ‘alternative finance’, but this market is now a mainstream source of business finance. It is growing in stature as it delivers a track record of providing significant finance at reasonable costs and with a keener appetite to lend than the banking industry. The application process with non-bank lenders is usually web-based and the process is generally quicker and less intrusive than seen in high street banks. They typically offer quicker lending decisions, understanding that borrowers have likely tried to obtain finance from their banks and windows of opportunity are shrinking as time goes by.
LendingCrowd, the trading name of Edinburgh Alternative Finance Limited, was founded to help SMEs thrive by giving them access to non-bank lending. To find out more about LendingCrowd, call 0345 564 1600.