Financing options for private companies
We help you explore the numerous options open financing options for private companies you in terms of raising finance, along with the advantages and disadvantages of each method.
Raising funds to help support your business's growth is fundamental to financing a company, and in the unprecedented economic environment, this is an ever-increasing challenge for UK businesses. Grant Thornton is experienced in helping management teams, corporates and private shareholders raise finance. Our teams will help guide you throughout the whole process, from identifying the most appropriate forms of finance, through to the final negotiations.
Explore the options available to you in terms of raising finance, along with the advantages and disadvantages of each vehicle. Asset-based lending ABL is a way for a company to raise funds from its existing assets, largely its debtors. Businesses may consider ABL to financing options for private companies immediate capital needs, such as stock and equipment purchases, expansion plans or restructuring financing options for private companies as well as to free up money for strategic business needs, such as acquisitions.
ABL is a fast, cost-effective way for a company to raise working capital while still maintaining growth in the core business. Generally, asset-based credit is flexible and allows a business to bridge any cash flow gaps that come about because of the timing of accounts receivables. A further advantage of ABL is that as the business grows, the finance possibilities also grow.
The main disadvantage of ABL like most forms of bank debt is that if the company defaults the Financing options for private companies facility is removed and shareholder value lost.
Another consideration for borrowers is that the amount of any loan is based on the value given to the collateral. Grant Thornton has extensive experience in this area of finance, raising between 70 financing options for private companies cent and per cent of the value of an asset, depending on the type of asset, the credit quality of the company, the term of lend required and the condition and value of the asset. An example of this is the funding package for Quattro, a London-based provider of plant-hire services to the rail industry.
Understanding the business and the market in which it operated were crucial first steps in determining the right structure for the transaction in a difficult market. Grant Thornton facilitated both the negotiation and structure of the deal. Reducing the number of providers allowed the management team more time to focus on the business. The proposed single plant and machinery facility made more effective use of the asset base and enhanced monthly operating cash flow.
In addition, control over the entire fleet gave the eventual lender more comfort that their position would be secure. Mezzanine debt refers to a hybrid form of debt and equity financing which is long term in nature and sits between bank debt and equity finance. Since this type of finance is higher risk for lenders, a mezzanine provider will seek a relatively high return on their investment but this will be less than an equity investor. Mezzanine debt provides a flexible way in which companies can raise capital without giving up a financing options for private companies equity stake in the business.
This is useful if a company needs capital for a buyout or a large-scale expansion. It is important to check that taking on mezzanine debt does not restrict the ability of a company to take on other loans in the future. Most lenders will include restrictive covenants in the loan agreement. Grant Thornton has expertise in a range of financial restructuring solutions for companies including mezzanine debt. It works with directors, shareholders and other interested stakeholders to create solutions for business turnaround and stable growth.
Grant Thornton has a strong track record of evaluating complex, multi-jurisdictional, highly leveraged and time-critical situations and acting for parties at all levels of the capital structure. As an example, we advised Quattro, a leading provider of specialist plant-hire services which wished to raise finance for working and development capital. Grant Thornton approached more than 30 debt, asset, mezzanine and equity providers to ensure Quattro obtained the best solution. A lessee pays a regular fee to a leasing company to use or own an asset such as equipment or machinery.
Under finance leasing agreements companies generally lease the asset for the majority of its useful life. With operating leasing or contract hire agreements the asset eventually returns to the leasing company the lessor. Leaseback is also a convenient way to free up capital by releasing the value of an asset. Leasing allows a company to budget over several years, manage its cash flow and do away with the need for an up-front capital outlay.
Leases are often available on longer-term contracts than bank loans and the fee can be paid for financing options for private companies of revenue earned.
However, it is important to think carefully about the type of lease agreement as this will determine who owns the asset at the end of the lease.
Grant Thornton is an associate member of the Finance and Leasing Association. This includes rental, vehicle contract hire and fleet management, vendor leasing and captive finance houses. We can give sector-specific advice and help through every stage of the process as well as project management of the transaction:.
The council wanted to realise a capital receipt from its non-core assets for investment in both the parking infrastructure itself and also to maintain investment in key council priority projects.
Grant Thornton worked closely with the company's management team and the council to ensure an optimal solution for both parties. As well as sourcing and negotiating commercial funding, Grant Thornton advised on all tax implications of the lease transfer.
The council retained the freehold assets and therefore a long-term benefit and potentially enhanced future return on this element of its asset base. Banks are often the first place a business turns to for advice or a loan when financing options for private companies needs capital. But there are different ways to borrow money from a bank, whether running a temporary overdraft to smooth over peaks and troughs in your cash flow or taking out a short or long-term loan.
A loan may be unsecured, or secured against collateral such as property, equipment or another asset. As with all types of debt financing, you will need to pay interest on the debt and repay the principal. Many companies use bank debt as their main source of external funding, but for bigger businesses it is generally just one of many sources of funding. A major advantage of bank debt is that it is available to most companies as long as you can offer some security for the loan, and have a solid business plan.
Once you have agreed the amount that can be borrowed you can get on with the day-to-day management of your business. Therefore, your effective interest rate may well be substantially lower than the paper rate to the bank. Nevertheless, the company may still be faced with high rates on bank loans, especially in a small business with a poor credit rating, and this will impact on cash flow. Therefore it is important to seek professional help for the taxation and business implications of taking on bank debt.
Grant Thornton offers a range of services around immediate and longer-term funding requirements. It has particular expertise in working with EIB loans for large scale public funding projects.
The bonds achieved AAA status. This was one of the first projects where the EIB took a construction risk. When a small business starts up, the owners often turn to friends and family for financing options for private companies to help them to grow their business. As a company grows, this source is unlikely to be sufficient to finance its growth strategy, but financing options for private companies external investor who can put in more substantial funds, may be a good additional source of finance.
A high net worth investor may be interested in your company for two reasons: A private investor can be a source of either short- or long-term finance. Getting a high net worth on board can be particularly helpful to financing options for private companies private company that is at the early-stage of its development, or needs a large injection of cash to expand rapidly.
However, this type of finance can come at a cost to you if you want to maintain the independence of your board. A large investor will want to get value in return for their investment and may demand a substantial stake in your business.
Of course, there are positive arguments too in having the right high net worth on board. Many businesses have benefitted from partnership with an investor who not only injects cash, but also can contribute knowledge or skills to the management team. At Grant Thornton financing options for private companies have expertise in advising companies who want to find the appropriate investment.
We also advise high net worth investors on the best tax and financial vehicles for their growth strategy. As a key partner of the Gateway2Investment G2i programme, we are playing a crucial role in helping businesses maximize their chances of success when approaching lenders to secure finance.
G2i is one of two streams of the wider Understanding Finance for Business programme, designed to maximise the success of London businesses in raising finance to support their growth ambitions. The programme gives hands-on support to companies in making informed choices about the type of finance they need, and gives tailored advice through seminars, workshops and one-on-one support to prepare themselves to present an attractive proposition for banks, business angels or venture capital investors.
It is delivered by a team of private financing options for private companies experts and specialists, and funded by the London Development Agency and European Regional Development Fund. Private equity is a form of funding where investors provide long-term equity capital investment in a company in return for shares, a percentage stake in the financing options for private companies and sometimes a seat on the Board.
Private Equity can be used to finance MBO transactions or provide equity capital to support a company's growth plans.
Private financing options for private companies investors are typically funds looking to invest in high-potential businesses, typically funds for long term capital growth.
The investor expects to make a high profit in return for the risk of an investment that is not listed on a stock exchange. Many companies are reluctant to dilute their ownership of the business through this form of finance. However, it is important to bear in mind that a reduced share may still be worth more money in absolute terms over the long term if a business grows as the result of investment.
If a company needs to raise capital, but is not ready to list on the stock exchange, private equity can be a good option. Private equity finance is often focused on financing options for private companies 5 financing options for private companies time horizon until an exit for shareholders is sought.
The company can use the funds raised immediately for development or replacement capital. Another advantage of private equity is that the right investors can bring contacts, commercial and strategic expertise at a key growth point for a business.
They will have a vested interest in helping the business to grow as they will financing options for private companies realise their investment on sale of the stake. The borrower therefore benefits from shared financial responsibility without increased personal debt risk. However, bear in mind that raising equity finance can be a time-consuming business. Financing options for private companies will be up-front legal issues to deal with and on-going reporting requirements to the investor.
The shareholders wanted to crystallise shareholder value via a partial exit and raise acquisition funding. Thanks to our strong relationships within the private equity community we successfully identified a financial and strategic investor who could leverage on Apogee's previous success in maximising returns in the future. Grant Thornton undertook a thorough analysis, comparing various deal scenarios with differing sensitivities and investor returns.
This resulted in a deal structure that maximised shareholder value and was acceptable to the incoming private equity investor. The deal was completed within an impressive 91 working days. ECMs are platforms that allow companies to go public and to raise new equity capital from financial institutions, such as pension funds, insurance companies and private individuals.
Raising money from the public markets offers a way for companies to grow and more broadly enhance their business. Key benefits from going public include gaining access to capital to facilitate growth, creating a market for the company's shares, to provide the company with quoted paper to use as a currency to make acquisitions, to raise the company's profile, to enhance the company's status with customers and suppliers and to provide an objective value on the company's business.