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Raising Debt for HNWI in the Current Economic Environment

3rd October 2022
Islay Robinson GROUP CEO

Islay Robinson

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Raising Debt for HNWI in the Current Economic Environment
GROUP CEO

Islay Robinson

Over the next few months, we expect to see an enormous demand for liquidity. In turbulent markets, debt can be one of the best ways your clients can access the capital they need to solve problems and unlock opportunities.

As a leading debt advisory firm, we negotiate finance for high-net-worth individuals, entrepreneurs and business owners. We work alongside you to ensure your clients have access to the best rates, and to arrange debt as quickly as possible, in a way that is advantageous from a fiscal, financial and structuring perspective.

The more complex your client’s requirements for finance, the more urgently they need to access debt, and the more complex their financial background, the more value we will add as a broker. We will look at what your client needs to achieve, or the problem they need to solve, to understand what kind of lending or product will suit them best. 

Here’s an oversight of four types of finance we expect to be popular with high-net-worth individuals in the coming months:

Portfolio finance

There is currently significant demand for securities-backed lending. While some investment managers may be implementing defensive strategies and looking at how best to protect wealth tied up in securities, your clients can still use these assets as collateral for a loan, allowing them to access liquidity quickly without selling them. 

We can usually arrange finance packages with higher LTV than you or your clients can access by going directly to lenders. We can organise finance in deals where securities are listed on smaller stock exchanges, against pre-IPO stock, a single line of stock, unlisted stocks, bonds, and against carried interest from venture capital funds, private equity, investment funds, mutual funds and hedge funds. As long as your client has a defined reason for using this type of finance and a plan of how they (or an adviser) will manage the loan, most lenders can consider lending, and portfolio finance is a great way for your clients to access capital quickly.  

Securities-backed lending scenarios we’ve seen recently:

  • Raising capital to buy property
  • Create liquidity allowing a client to put assets under management with a bank
  • Create capital to reinvest to diversify revenue streams and investments
  • Pay off a tax liability and generate personal liquidity

Private debt 

Despite the volatility of past weeks, banks remain liquid and willing to lend. However, they are being cautious and they are increasingly discerning about who they will lend to, the scenarios they can consider lending in, and what products they offer. 

Any time bank lending becomes more conservative, non-bank lenders come into their own. In this respect, we see plenty of opportunities for HNWI to explore private debt, especially if bank loans become more challenging to access. We expect it may become more common for your clients to find they don’t meet banks’ lending criteria or are turned down for lending in the coming months. This isn’t a reflection of the quality of your client. Instead, it tends to be an indication of lenders’ appetite or ability to take on certain types of deals in certain markets. 

Private debt can be far more flexible than bank lending – it has all the hallmarks of a conventional bank loan but is often faster to arrange, and lenders can be more open to complex and unusual scenarios, given they aren’t confined by the same lending criteria as banks.

Private debt can be advantageous in the current economic situation. If your client wants to explore private debt, they will likely find that lenders tend to take a broader view of lending, understand the borrower (corporate or individual) in more depth and are more open to scenarios banks simply can’t consider. There are many players in the space, which range from alternative lending firms to private individuals. Private debt can come into its own if your client has an unusual case for borrowing, needs finance to solve a hyper-specific problem, or doesn’t have a profile banks can cater to. 

Private debt has an interest rate, a term, defined security and fees, charges, conditions and covenants. More players are entering the space as they see the opportunities offered in private debt as an asset class, especially considering the expected need for liquidity in the coming months. 

Private debt can be used in almost any situation, and as such, it is something we often suggest for your clients that can’t raise finance through mainstream lenders. Borrower demand for private debt has increased since the 2008 financial crisis, particularly for small and medium enterprises, for whom some banks have reduced their lending activity. In the current economic environment, we expect an uptake in private debt as more businesses look to access finance and they seek out private debt for its flexibility and lenders’ ability to cater to them.

Corporate lending 

While the UK economy has dominated the headlines in recent weeks, there is still a good lender appetite for corporate finance, including lenders that can offer substantial loans. Many UK businesses are looking to harness growth or are looking to use debt strategically as a way to manage cash flow more effectively and keep good levels of working capital within the business. 

Corporate finance lenders remain open to financing businesses that operate in any sector, but have a solid appetite for considering lending to mature enterprises (particularly those that have weathered economic downturns before) and companies with reoccurring revenue. If your client has a strong business with a good trading history and operates in a sector with robust demand, lenders are generally quick to consider corporate finance. For example, healthcare, professional services, IT and communication firms are key areas of focus for corporate finance lenders in the current market. 

For some businesses, managing cash flow remains a key consideration, and raising finance to facilitate that may be an avenue your clients wish to pursue in the coming months. VAT finance, invoice and stock finance can all be used to help do this, and lender appetite for these products remains strong. 

Corporate finance scenarios we’ve seen recently:

  • VAT loans and corporation tax loans to manage business cash flow effectively rather than paying liabilities as a lump sum
  • Raising capital to buy out a business partner
  • A working capital loan to scale a high-potential business through infrasturucture and manufacturing investments

Bridging finance

We consider bridging finance as the ultimate opportunity creator in the current market. Your clients can use a bridge loan to release significant equity from UK or international property. Your client will need a defined reason for using a bridging loan, but lenders can consider almost any scenario: from purchasing undervalued real estate assets, investing in securities or shares, investing or buying a business, and so on. Your clients can also use bridging finance to solve problems or challenges: for example, to consolidate debt, raise capital to save an asset, tide a business over with an injection of working capital, etc. 

We expect bridging finance to be especially popular in the coming months as a fast way to raise liquidity without selling property. More and more lenders offer bridging loans against international property. Many cater specifically to high-net-worth individuals, lending via structures and have a wide approach regarding what they can deliver in terms of loan amount and loan use, which makes this a particularly flexible type of lending for your clients.

Bridging loan scenarios we’ve seen recently:

  • Equity release to redevelop a property before selling it at a profit
  • Bridging to create liquidity to pay an unexpected tax bill
  • To cover a cash-flow gap for an individual before the sale of a business which was in progress
  • To create capital to invest in the stock market

Get in touch

If you would like to understand more about how your clients can raise finance, the assets they can use as security for a loan or lending in the current market, get in touch. We are happy to chat through the options and explain more about what’s on offer, and the products that will be available to you to your clients.