Accessing Finance As A Small Or Medium Enterprise
In the world of corporate debt, big businesses and multinationals that want to raise hundreds of millions of pounds are usually well-served, with lenders vying to write these kinds of loans. However, for smaller and medium-sized businesses, corporate debt is often much more challenging to access. Mainstream or high street lenders don't always want to write 'smaller' loans (which can be anything from £50,000 - £10 million), and those that do may only offer a small suite of facilities (often short-term finance) rather than different types of corporate loans. In other cases, the rates and terms they offer SMEs are inflexible or part of 'package deals', which serve a base need if you need to access finance, but can't be optimised or structured effectively.
However, many different facilities are available to SMEs and plenty of lenders that cater specifically to you, if you fall into this growing group of borrowers. They tend to be smaller lenders specialising in SME financing rather than larger lenders who typically write bigger loans. The lenders that offer SME finance usually have a suite array of facilities that allow corporate borrowers to access different types of corporate loans (either individual loans or multiple facilities secured against one or more assets that businesses can use for various purposes). The ability to access these facilities means SMEs can rely on something other than precious cash reserves or inflexible overdraft facilities, which tend to be rigid regarding amount, capital deployment, timescale and cost.
With whole-market access, Enness can arrange different types of corporate facilities for small and medium enterprises that want to raise debt for almost any reason, including to:
There's a generalised assumption that lenders are inflexible with corporate finance repayment profiles and only offer monthly repayment terms, which are capital and interest payments.
While it's true that lenders will generally offer a monthly repayment structure as standard, there's often a basis to negotiate repayment terms that are significantly more advantageous for your business. Interest-only loans are possible, as are partial interest-only loans, where a specified loan period is interest-free (i.e., six months after completion) before the loan changes to have a different repayment profile.
While different repayment profiles are possible for a corporate loan, anything that diverges from a standard (i.e., monthly) repayment structure will almost always have to be negotiated from the outset. Enness will always assess the most advantageous repayment structure with you and will make a case to your lender to support this. Usually, lenders will want to see clear reasons for repayment schedules that diverge from a standard monthly structure, so building a solid case backed by facts and documents in advance of approaching lenders is essential.
Business Goals And The Importance Of Structuring Debt
When we arrange corporate finance, we always take a high-level approach, working backwards from your business' goals and the specific outcomes you need to achieve. This is critical when it comes to successful debt structuring because while many companies need to raise finance for particular purposes (i.e., to achieve a growth target or make an acquisition), to optimise the loan for the business, there are usually more angles to consider.
Structuring corporate debt can be considering anything from the flexibility of the loan from the perspective of repayment and ability to deploy capital for different purposes to accessing a revolving facility or arranging a competitive loan today that is to be drawn down later - in two to three months, for example. It's also important to consider the impact of debt on the company's financials: sometimes shorter-term loans or credit lines will allow a company to attain its objectives but will be more beneficial from a budgetary and financial perspective than taking on long-term debt, even if the latter looks like a cheaper or more accessible option.
Ultimately, there is no one-size-fits-all solution. The best corporate debt packages are always tailored to the business taking out the loan. From the outset, we will identify the structure and facilities most advantageous to your company and approach lenders to negotiate packages that meet these requirements.
Secured and Unsecured Corporate Finance
Most lenders will prefer to offer secured loans because they are effectively sharing risk with borrowers by being able to leverage collateral. However, unsecured loans can be an option in some cases, and many business owners and CFOs want to explore them in specific circumstances, usually when a company is in excellent financial stead, and debt is a tool you’re using to optimise cash flow and your financial position, rather than to cover a capital shortfall.
Unsecured loans can be helpful if you want to draw down funds quickly (because lenders don't need to evaluate any assets), and they are comparatively less risky to you as a borrower as you don't put forward any security. The speed with which these loans can be arranged often makes them perfect for businesses needing a short-term capital injection to solve a problem or pursue a time-sensitive opportunity.
However, there are also drawbacks with unsecured loans as they will come with higher interest rates and smaller loan amounts than a secured counterpart. Unsecured loans are possible for many businesses, but they must be negotiated carefully to ensure you get the most competitive rates and terms. A business needs to ensure there is a concrete 'added value' factor with any unsecured lending rather than taking out this type of loan because it seems like an easier option. When carefully negotiated, secured loans can be as advantageous, cheaper and drawn down just as quickly as unsecured loans in many cases, so exploring your options for each is always advisable.
Personal Guarantees For Corporate Loans
Many business owners will also need to provide personal guarantees for corporate loans. The less' vanilla' your request for finance or situation, the more likely it is that you will be required to give a personal guarantee, particularly if you have a relatively small or new business (regardless of your personal success, acumen or track record - lenders are not discerning on this point). As personal guarantees fall at the intersection of business and personal affairs, you may not wish to avoid these wherever possible, as you will need to use your own funds to cover your company's debt if your business defaults on a loan.
If it's your wish not to place a personal guarantee, we will do our best to arrange a loan where it is not a fixed requirement. In many cases, we can achieve this, even in scenarios where it is usually a prerequisite for accessing finance. However, if it is necessary to make a personal guarantee, but it is still your wish not to place one, we will look at other options for you - personal guarantee insurance is one avenue to consider and something Enness' expert corporate finance brokers can arrange for you, for example.
The views and opinions expressed in this piece are those of the author and do not constitute advise or a recommendation, nor do they necessarily reflect the official policy or position of Enness. They are also not intended to indicate any market or industry viewpoints, or those of other industry professionals.
This guide is for information and illustrative purposes only and nothing contain within should be construed as advice or a recommendation.
Corporate financing and lender introductions are unregulated.