Gaenor Cassell: Keep the cash flowing with the right choice of lender

Gaenor Cassell is a Partner with Burness Paull
Gaenor Cassell is a Partner with Burness Paull
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Any growth strategy, especially one which involves taking your business onto an international stage, is likely to need ­funding.

Restricted cash flow is often the primary barrier to business growth. However, accessing debt funding for the vast majority of companies in the food and drink industry can be challenging, ­especially for SMEs. How should you go about it?

Three key things can maximise your chances:

– Be prepared. Invest time in putting together well-presented, comprehensive information, which can be delivered to a lender with your funding request – with a business plan and projections modelled to take account of all ­relevant scenarios, including (most importantly) the downside.

For example, what could be the impact of price or currency fluctuation, regulatory change, bad weather or predicted geopolitical situations in jurisdictions ­relevant to you or your main ­customers or suppliers? How will the current strain on the retail sector affect your growth plans?

A polished, professional, ­comprehensive and robustly-challenged information package will win you huge credibility and help demonstrate your capability to operate your business during the bad times as well as the good.

– Be creative. When contemplating what type of financing will work best for your SME, the most available, reasonably-priced high street bank options are invoice financing, asset financing or equipment leasing.

Historically invoice financing was considered a last resort by many. However, if you understand its risks and limitations, it might provide working capital liquidity at reasonable cost. If you think invoice financing might work, can you make any improvements to your debtor book to ­optimise its appeal to lenders? Can you improve your terms and conditions or credit control functions? Are you overly dependent on one/a small number of customers and could you diversify?

The low-cost nature of invoice financing is attractive, but doesn’t work for some businesses as it is too cumbersome to administer and doesn’t generate necessary liquidity when needed. If this is the case, if equipment leasing is not a viable solution and if you are struggling to gain ­traction with high street banks, consider speaking to a non-bank lender.

They obtain their cash from various sources (private equity, institutional cash, peer-to-peer lenders) and while their facilities can be more expensive, they can offer more flexibility, especially in relation to cashflow lending where there are no significant tangible assets to be secured. They can also serve as a bridge to obtaining more traditional, cheaper sources of funding.

The majority of non-bank lenders have focused attention in ­England, but many are looking for opportunities in Scotland. The challenge is demand; a recent survey indicated only 1 per cent of food and drink businesses in Scotland were aware of non-bank lenders’ existence. However, although high street banks are still the predominant channel, SMEs are increasingly diversifying their choice of finance provider. If you are considering a non-bank lender, do your research. Talk to peers, professional advisers and even your main bank. Often banks will recommend customers speak to a non-bank lender if they are unable to provide the facilities requested.

– Be selective. Consider what additional advantages can be gained from entering into borrowing arrangements with a particular lender. This is equally the case when choosing a bank to do your clearing and/or ancillary business and professional advisers. Identifying and maintaining strong local partnerships and developing good business networks can be imperative.

The question is, what is the best way to source these? Many high street banks have international portals, networks and relationships that customers can access. Your professional advisers should be able to use market knowledge to make introductions to potential lenders. If your growth plans are international, your professional advisers should also offer access to international business relationships and knowledge.

So, in summary, ensure your information package is well-prepared, be creative and flexible when considering different types of lender and ensure you get added value from your backers and advisers. Mix all those ingredients together and you’ll be more likely to have the recipe for success.

Gaenor Cassell is a partner with Burness Paull