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changes in corporate financing

29 November 2012

Our recent deals...

Our corporate and banking teams completed work on a variety of deals over the recent months. To see a selection of these, click here to view our transaction update.

You may also be interested to hear that we are seeing some important changes in the finance market which are encouraging for companies who need funding - be that for working capital, capital expenditure to fund organic expansion or acquisitions.

If you are looking for additional working capital…

Last month the Government announced the Supplier Chain Finance scheme which a number of leading UK companies signed up to. Essentially, it is a form of invoice finance, with the funding being available to the customer rather than the supplier. As with typical invoice financing, the supplier is paid a percentage of the invoice value when it is issued (approximately 80) rather than having to wait for (for example) the 90 day payment period to expire, which provides great cashflow benefits. This type of finance works well if the customer has a strong covenant and can therefore raise the invoice funding when the supplier is unable to do so. The cost of this finance to the supplier is then deducted from the payments due under the invoice.

If you are looking for options to open up additional funding on existing deals…

Invoice financing including cashflow lines

Asset based lenders/invoice financiers have previously stretched the funding they have been prepared to make against a companys collateral base (for example receivables on stock) by providing cashflow lines. Over recent years these had all but disappeared but we are now seeing them re-emerge on transactions. Therefore, if a company has a customer base with strong and established corporates, this can open up additional funding to get a transaction away that may have otherwise stalled.

LTVs

We have seen that for strong corporates certain banks are prepared to lend up to 70 of LTV rather than the lower market standard (55-65) - thus increasing quantums and the opportunity to get deals away especially in the real estate finance sector.

If you are looking to grow your business without giving away equity…

To assist growing SMEs get to the next stage without giving up equity Santander, through their Breakthrough Growth Capital Fund, are providing mezzanine finance. We advised on the first Santander growth capital deal in the Midlands which saw £1.5 million of the total £200 million Santander Breakthrough pot being lent to Ridgway Machines Limited - a Leicester-based engineering company - who will be using the money to help grow its business overseas.

Santanders Breakthrough funding is supported by the Governments Business Growth Fund, which is being supported by RBS, Lloyds TSB and HSBC amongst others.

If you are looking for cheaper funding…

The Government and various leading banks have also recently launched the Funding for Lending Scheme. This is the latest attempt to boost bank lending to the residential mortgage market and to businesses, especially SMEs .

Under the scheme the participating banks will borrow from the Bank of England at low rates and then on-lend at 1 less than their normal interest rates and without any arrangement fees. There are some conditions attached to this scheme (for example it does not apply to loans to businesses in the financial sector) but it does seem to have some real traction.

If you are looking for alternative funders…

Insurance companies and institutions as lenders

With the under-performance on equity markets, insurance companies and institutions are following their US counterparts and entering the European real estate debt market for a healthier return from commercial mortgages - helping to fill the debt gap left by the banks as they deleverage in this market.

Local authority finance

Certain local authorities are providing facilities to support businesses in their community. Examples would be Finance Birmingham, funded by Birmingham City Council and the launch of the new Leicester-based bank - Cambridge & Counties backed by Cambridgeshire County Council Pension Fund and Trinity Hall. Cambridge & Counties offers property loans of between £50,000 and £1 million specifically to small businesses, with a particular focus on those in Leicestershire, Cambridgeshire and Northamptonshire.

If you are looking for light touch development finance…

We have seen instances of banks being prepared to provide a development finance facility without the usual tight controls on property deals - for example the appointment of a monitoring surveyor to protect the banks interests. Specifically, the developments involved a substantial refurbishment to an existing property and a residential development by a regional house builder and, in both cases, the light touch monitoring helped secure the bank the transactions.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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