As a business owner, you may face complex challenges and opportunities that require considered solutions. Sometimes your business needs aren’t clear cut, and lots of factors may come into play. From managing several financial agreements to planning your retirement or selling the business. You may even be considering acquiring a new business. If so, structured finance could be the answer you’re looking for.
What is structured finance?
Structured finance is a more complex level of funding for your business. It involves bringing together a selection of products such as asset, asset refinance, invoice finance and business loans, potentially all with different lenders, to solve an issue or support strategic business growth. It’s particularly beneficial for companies who are looking to acquire other businesses, restructure existing facilities or handle unexpected financial challenges.
What can structured finance help with?
When it comes to why structured finance may be used, it usually comes down to two key reasons. Business growth or restructuring due to cashflow pressures. Structured finance can be applied in several ways:
- Acquire other businesses as part of growth strategies – If your business is aiming to expand by acquiring other businesses, you can utilise structured finance to fund the purchase. By assessing both the target business and the acquiring company, our financial experts can determine how much capital can be raised against each entity’s assets to support the transaction.
- Facilitate management buyouts (MBOs) – If you wish to sell your company to your management team, structured finance can help raise the necessary capital. This approach allows the current owner to exit the business while ensuring continuity throughout the management team. This is also an effective way to extract value from the business at a more tax efficient rate.
- Manage existing debt and improve cashflow – Companies facing financial distress can use structured finance to consolidate and restructure existing debt. This can help alleviate cashflow pressures and and provide headroom for future growth.
How does structured finance work?
The solutions themselves are typically tailored to the specific needs of your business, often varying in complexity. The process involves:
- Asset evaluation – Assessing tangible assets (such as machinery, vehicles and property) and intangible assets (such as accounts receivable and debtors) to determine their value and assess what debt can be leveraged against them.
- Determining the the unsecured element – For business operating in sectors who typically don’t own tangible or intangible assets, we may need to seek a fully unsecured (also known as leveraged) finance package to support any transaction.
- Combining financial products – Depending on the needs and current financial position of the business, integrating asset finance, invoice finance and unsecured borrowings can create a comprehensive funding package.
- Working with advisors – We’ll collaborate with your corporate financial advisors and professional team to model and forecast the impact of borrowings and help find the best way for you to acquire or sell your business.
- Risk management – It’s important to conduct due diligence on financial projections and management performance to mitigate any risks that are associated with the transaction.
Does structured finance require any sort of security?
Structured finance facilities typically require security. However, it will be dependent on the requirements of the business and what products will make up the facility. For example, if invoice finance is involved, security will be raised against the debtors. If asset refinance is included, the security would be raised against the assets owed, such as plant and machinery. If you’re looking at a leveraged finance transaction, then typically debentures are required and potentially an element of personal guarantees.
Financial flexibility
Structured finance allows businesses to combine multiple financing products from different lenders. This flexibility helps to create tailored solutions that meet the exact financial needs of your business.
Better manage your cashflow
By leveraging assets such as invoices or machinery, your business can access funds that would otherwise be tied up. This not only improves liquidity but allows for smoother business operations and better handling of day-to-day expenses. In the case of leveraging invoices, it can help bridge the gap between receivables and payables, maintaining a steady cashflow.
Support growth and expansion
Structured finance can be utilised to facilitate growth. For example if your business is looking to acquire other companies or expand into new territories. Structured Finance solutions also provide you with the necessary capital to support expansion projects, growth strategies and even infrastructure development without straining your existing resources.
Restructure debt
If your business is currently struggling to meet existing debt commitments, you can use structured finance to restructure your borrowings. By consolidating existing loans or extending repayment terms, you can reduce financial pressure and better manage your business’s finances.
Tax efficiency
With management buyouts (MBOs), structured finance can help business owners extract value from their company at a lower tax rate. For example, extracting value/cash at Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief) and Capital Gains rates, rather than PAYE.
Cover legal and administrative costs
Structured finance can also be used to finance non-tangible expenses. This can include outgoings such as legal feels and advisory services during acquisitions or restructuring. These costs can be incorporated into the overall finance package. This allows you to manage your cashflow more effectively and avoid any unexpected bills or financial strain.
In short…
Structured finance is a viable funding option for businesses who have complex finance requirements, whether that’s linked to their growth trajectory, or managing existing debt. By leveraging a combination of finance facilities, our team of structured finance experts will be able to guide you through creating a bespoke funding package to suit your exact business needs.
Written by Callum Bull, Director