It’s a Friday afternoon at around 4.30. The sales team is winding down for the weekend and purposeful activity has given way to a debate over where to go for after-work drinks. Meanwhile in the Managing Director’s office, the PA has just put through a call from a local accountancy firm. The owner of a competitor is thinking about selling out and her accountants are taking soundings about the appetite of a potential buyer.
The MD takes the call and consequently spends the weekend making plans. An acquisition could double market share and put the company into a strong position to expand, not just regionally but nationally. But there is a snag. To make an offer, the MD and his team will have to raise some money. There’s no guarantee that the company’s incumbent bank will fund the deal, so that raises the prospect of shopping around for finance. And if that process takes too long, the opportunity could slip frustratingly off the radar screen, if another, better-funded rival, puts a bid in first.
The truth is that major opportunities are seldom open-ended and very often come with a price tag. It might be a chance to grow by acquisition or a major order that requires an upfront investment. Whatever the reason, a successful outcome may depend on getting the funding in place in accordance with a tight timetable.
There are two sides to this. On the one hand, a company seeking debt finance will ideally like a deal to be agreed and successfully completed as quickly as possible. Equally, though, if a bank or financier is going to reject an application, it is better for all concerned that the negative decision comes sooner rather than later. A speedy decision lets the applicant explore other avenues before it’s too late.
But often – particularly when dealing with High Street banks – the process of securing debt finance can become bogged down in an opaque process. After an initial flurry of activity on the part of the lender, it can take several months for a decision to be reached. By that time the opportunity may be lost. But things are changing, not least because of the impact alternative finance providers are having on the debt market.
The Route – Finance, for example, is specifically structured to cater to deals that require a quick initial decision; we carry out due diligence and typically provide an answer significantly more quickly than a traditional lender.
When a business approaches a traditional lender, it often has a huge amount of genuine optimism. Assuming that the business plan tabled by the company fits the lender’s criteria, you can expect a series of positive-sounding discussions. If all goes well, what results is a proposal that gives the borrower the required funding in a suitably structured package. All looks good.
But the process doesn’t end there. The final decision on whether or not to approve the funding will be taken not by the lender’s relationship managers, nor indeed the directors, but by an ‘independent’ credit committee that sits apart from the customer-facing teams. This final layer of judgment exists to provide a more definitively unbiased and rational voice in the process.
In principle, there is nothing wrong with this approach, but increasingly, the process of applying for funding and submitting a business plan can end in unexpected disappointment, if the Credit Committee says no.
An Alternative Route
The Route – Finance understands that entrepreneurs cannot afford to labour in protracted decision-making procedures. To that end, it has designed a process that is responsive to the needs of business owners who are working to their own, perhaps urgent, timetables. The Route – Finance provides borrowers with access – via its Private Debt Platform – to a community of high net worth individuals, who have committed pre-mandated funds to support small- and medium-sized businesses.
Loan sizes generally range from £0.5m to £5m. The first step for businesses is to complete the initial enquiry form, which includes all of the information that the technical team needs to make an informed, provisional decision. The turnaround time for this initial assessment generally takes a maximum of 48 hours.
But the key to arriving at a final, successful decision is thorough due diligence on behalf of the syndicate of investors behind the Private Debt Platform. As with any lending organisation, the technical tem needs to test the credibility of the borrower, scrutinise the business plan and fully understand how the funding will be used to deliver on the company’s goals. Equally important is understanding the context of the market to establish whether the projected growth plan of the borrower is viable. The team always meets the borrower in-person, and often makes a personal trip to the site of the project in order to ensure personally that the elements of the project are legitimate and viable.
Furthermore, as all loans are secured against realisable assets, The Route – Finance requires a recent valuation of the collateral offered by the borrower, and will often instruct a trusted and efficient valuer to provide this third-party assurance. (see due diligence blog) It’s a comprehensive, but not intrusive, process that is just as thorough as that of any traditional lender. Once complete, The Route – Finance can recommend the project to members without hesitation.
Because investors on the Private Debt Platform have already mandated funds to the platform, a project that has successfully passed due diligence is able to receive funds very quickly. Meanwhile, the applicant benefits from reliable communication and is kept fully conversant with the progress of the application from first contact through to drawdown. We can move from initial application through to drawdown in as little as 6 weeks, and certainly within a 12-week timeframe. This is a more rapid turnaround than traditional banks can offer on similar deals.
If you’re interested in learning more, give us a call or send us an email at email@example.com