It’s looking like 2021 is going to be much more positive than last year, and whilst there may be several more challenging months ahead for businesses, there are certainly steps that SME owners should be taking now to ensure that they’re as prepared as they can be to recover to pre-pandemic performance.
For many, this will involve securing funding for growth and there are two prominent corporate finance trends that we’re seeing at Reach Commercial Finance.
Funding for investment
We’re working with an increasing number of small private investors who are looking to buy into businesses – both from owners who haven’t got the appetite to rebuild as we emerge from the pandemic and from those who simply want to retire. The timing is certainly right, as there are a number of viable companies that are being marketed at competitive prices.
Refinance
We’re also experiencing an increase in long-standing clients and businesses that are looking to review their finances with a view to possible refinancing. In these cases, we’re advising on the options available to both existing owner managers as well as potential new business owners.
When it comes to refinancing, it’s important that business owners explore and clarify their cashflow requirements to determine if the required level of borrowing is firstly affordable, and secondly sufficient to meet the needs of the business as it grows.
Banks becoming risk-averse
We’re seeing more companies secure funding from the alternative funding market, as the high street banks take the time to review their portfolios. The volume of enquiries that the banks have had to handle in the last 12 months has put a great strain on their resources.
Access to new funding need not always be through the traditional routes and we believe that banks will be tightening their credit stance as businesses get their cashflow tested in the coming months. We don’t believe that banks will come out and decline funding applications due to a business having to take a Bounce Back Loan or Coronavirus Business Interruption Loan, but it will certainly be a determining factor as to how much extra debt an owner manager can support.
Traditional lenders review portfolios
Many companies find themselves in financial positions that would have been unthinkable just a year ago. Their trading performance may well have been affected which, in turn means their application for new funding will be more challenging. Now, more than ever, is the time to be making use of an expert who can help a business navigate the marketplace.
How to be in the strongest position to begin again
To ensure that a business is in the best position to secure the necessary funding to support their re-opening, our advice is to prepare both a 12 and 24-month cashflow and then continue to monitor those forecasts closely.
For many business owners, such planning has never previously been necessary. However, as we move forward, lenders are going to require this level of detail when approving new facilities, as the challenges of the last twelve months may well have had an impact on their turnover.
Knowing where your business is at now, and where it will be in two, six and 12-months’ time is crucial. It’s all we can do at the moment to be in with a chance of securing funding to move on.
Funding factors to consider
When reviewing trading performance, consider what your company will look like when furlough payments stop. What will it look like when you’re repaying CBILS, Bounce Back Loans or HMRC arrears? What impact will the credit terms you offer have on the cashflow and how do you bridge that gap?
Careful review, planning and preparation really is the best thing we can do at the moment. Until everything’s a bit more settled and clear, it’s tricky to know what the future holds. But detailed planning will stand every business in good stead.
Reach Commercial Finance is an independent financial brokerage with a wide range of experience in helping limited companies and corporate entities secure funding. It is part of Leonard Curtis Business Solutions Group.