10 Nov 2017 | 11.52 am
Guest Blog: Funding Options For SMEs
Perspective from Richard Duffy of BDO Corporate Finance
10 Nov 2017 | 11.52 am
For any firm that is considering raising finance, there are more funding options available than any time in recent years, says Richard Duffy of BDO Corporate Finance
Are you considering raising finance to expand your existing operations, enter international markets or acquire a company? If so, there are more funding options available than any time in recent years. Availability of capital is no longer an impediment, assuming you have a credible business plan with growth potential, and that you have capable management who can deliver the plan. Notwithstanding the ongoing political and economic uncertainty surrounding Brexit, in our experience there are plenty of finance options available to businesses.
So what are these options?
Finance to develop and grow a business will often come from a combination of sources. The type of finance you require is dependent on where you are in the lifecycle of your business and its capital structure at the time you go to raise finance. With the absence of funding available from banks during the recession, new types of lenders emerged on the Irish landscape.
Business owners can now draw from traditional debt lenders, alternative lenders and from a highly active growth fund/private equity (PE) market in Ireland. After Brexit, there is also strong interest from international PE funds.
Banking finance dominates the thinking of most SME owners. Its popularity is due to it being the cheapest financial product, which does not involve business owners having to sacrifice equity. The main SME banking providers are Bank of Ireland, AIB and Ulster Bank, who supply overdrafts, invoice discounting, leasing and term loans to customers. There is a plethora of other specialist players providing asset-backed and working capital finance, such as Finance Ireland, First Citizen, SME Leasing, Capitalflow and Bibby.
The alternative credit providers supporting trading businesses include Bluebay, BMS Finance, Broadhaven and Proventus. These players are more expensive than banking debt, charging coupons ranging from 10% to 15%. However, they tend to be more flexible in how they structure a loan and provide a greater quantum of debt than traditional lenders.
Equity investment can come from state agencies such as Enterprise Ireland, business angels, venture capital funds, growth/PE funds, high net worth individuals and family offices funds.
The emergence of local growth and family office funds is a big positive. They include the BDO Development Capital Fund, MML, Causeway, Cardinal Carlyle, Renatus, Broadlake and FL Partners, with players such as the Business Growth Fund and AIB Development Capital appearing on the scene recently as well. These parties will take an equity stake in your business, and provide significant cash resources and access to new management talent (if required). They can also use their own contact base to support you in driving future growth.
An important part of the equity mix is the Employment & Investment Incentive Scheme (EIIS). There are a number of EIIS funds in the market, including the Davy EIIS fund, which is managed by BDO and is the longest-running fund in the market. EIIS funding advantages include a fixed cost of finance for a four-year period, with no repayment until the end.
While there are plenty of funders in the market, securing funding is not easy. It is an involved and potentially lengthy process. You should seek advice from an experienced advisor at the outset.
BDO specialises in advising and securing funding for companies across all sectors from development stage thought to successful international growth, for management buy-out and bolt on acquisitions.
• Richard Duffy (pictured) is a director in BDO Corporate Finance. He has more than 16 years experience in advising clients on their financial and commercial needs in Ireland and internationally. Duffy’s experience covers a wide variety of transactions involving merger & acquisition, IPOs, fundraisings, restructuring and MBOs.