Following what seems a daily attempt to come up with new initiatives to kick-start bank lending by our esteemed prime minister – Mr Brown – and his sidekick chancellor (just do it Darling!) there are, interestingly enough, quite a number of alternative sources of funding and finance available in the market if you are prepared to take the time to track them down and put them in place.
As an example the areas that we at the Hoskyn Child Group have concentrated our efforts on have been in two specific sectors:
The SME turnaround and support finance market is one the government has been keen to address through the existing Loan Guarantee Scheme via the DTI, but with the current stable of well known banks fighting shy of this scheme, Brown and Darling have had to introduce this week – via Mr Mandelson – a £20bn package of additional guarantee support for future loans.
In addressing the SME market, Hoskyn Child has sought to access funding through two main sources to provide a form of mezzanine package. This is backed by high net worth individuals or assets held in pension funds being utilised as security against the loan packages. This solution (whilst not cheap) allows a struggling business short to medium-term funding to cover existing working capital shortfalls, as well as providing funds to effect a restructuring package and negotiate with their existing lenders.
Interestingly, the majority of the enquiries Hoskyn Child has received for this SME package have been generated through the financial institutions themselves, seeking to manage away problem clients or exit sectors that they no longer feel comfortable lending into.
With medium-term cash to play with, businesses and their management teams have been able to negotiate substantial discounts on existing borrowings, whilst additionally being able to effectively budget and forecast forward accurately with a level of confidence, to ensure a stable cashflow position.
The backers of the mezzanine facility can enjoy a significant return on funds advanced, with the addition of a negotiated equity stake in the business they are backing.
Typical lending facilities appear to be ranging from £500,000 up to £10m with 12%-15% per annum interest rates and an equity kicker of anything up to 20% of the company – expensive yes, but cash is king.
With the sub-prime market in a real state of flux, it is safe to say that a majority of existing lenders have been struggling to obtain the traditional finance lines from the prime lenders. In many cases, funding has not only come to a halt, but existing advanced funds have been subject to greatly increased rates and charges, and in some cases repayment requested. This – as we have seen – has led to many closing their lending books for the present, and in some cases – closing for good.
The aim of Hoskyn Child has been to source substantial funding lines from the Middle East and China via some of the smaller sovereign funds and investment consortiums. Most lines have a lower lending ceiling of £20m, however the upper capped level for a quality deal can be upwards of £500m.
These deals – whilst extremely complicated and time consuming – are available, and the appetite from lending sources is voracious and competitive if sufficient incentive is being offered. They will require a debt and equity structured package and it will be – again – costly, however the advantages of being backed by a highly liquid and well known partner are obvious and the nature of the market at present means that there are numerous takers for fresh funding lines.
These are troubled and testing times and until matters stabilise sufficiently for the traditional lenders to weigh in again with a full force, there seems little option other than to source funding from these alternative funding lines. As stated there is money out there. It is available, and if you are prepared to structure a win/win deal for both sides you will probably get the funds you require.
Good luck!