Growth Capital funding is a type of private equity investment, structured as a minority investment. It is aimed at companies that are looking for capital to expand or restructure, enter new markets or finance an acquisition without a change in control of the business.
Whatever stage your business has reached currently, it could help you take it further, without giving away control or significant equity. You can use the funds in any way you need to achieve your growth plans, whether they involve expansion, acquisition or new product development.
Growth Capital Loans are technically Mezzanine Loans and can work alongside additional senior debt facilities.
They can provide sums of £5 million or more for terms of up to five years.
Interest is paid quarterly, although with some lenders some, or all, may be rolled up and capitalised.
Capital is repaid at the end of the term or refinanced.
Security is provided as a second tier debt
Growth Capital funding must be arranged on a bespoke basis. It may be suitable for growing businesses with an annual turnover of up to £25 million and a minimum three-year trading history. A pattern of growth in sales and profits and a strong management team are all desirable.
Pros
The money is yours to keep
Venture capital can help your company grow quickly
VCs can connect you to other business leaders who can help you
Cons
Your investors own a stake in your company
Your company may not be ready to grow
Raising funds is an arduous process.
This is a way of raising finance for your business against the security of the money owed to it by its customers. An invoice discounting company will take over the management of your debtor book and advance a percentage of each invoice issued.
Pros
Gives access to an ongoing supply of cash that grows as your sales grow
Improves cash flow by releasing up to 85% of funds against the value of outstanding invoices
It speeds up cash flow by removing the time lag between when your business issues an invoice to a customer and when payment is received
Outsourcing the management of the sales ledger may save your business administration costs
Cons
It doesn’t work for all businesses – it is particularly suitable to businesses selling goods or services on credit to other businesses
If a debt factoring service is adopted businesses might lose the relationship with their customers
There may be more cost effective ways of raising finance
For limited companies a debenture will be taken possibly impacting on the business’ ability to raise future finance elsewhere
The factor will want to set credit limits for customers which may affect the way you trade
Trade Finance is the process of financing certain activities in international trade and commerce. It includes lending, factoring, letters of credit, insurance and export credit. Import and Export Companies, Financiers and Banks, Export Credit Agents and Insurers are the main participants in this form of financial service.
How Does it Work?
Repayment terms are short term.
Financing is considered a “safety-net” to assist and protect the interests of B2B, buyers, and sellers in the international marketplace, by ensuring that the efforts of all parties are completed satisfactorily, notably where multiple currencies are involved.
Trade Finance has developed into a broad ecosystem, contributing to the growth of international trade. The WTO (World Trade Organisation) estimates that 80% to 90% of international trade is reliant on this method of finance.
Insolvency or lack of funds are not reasons why a company will take Trade Finance. Instead, it is a prudent method of protection against currency fluctuation, political instability, non-payment problems or credit worthiness of involved parties.
Method Example:
“A” (exporter) wants to be paid upfront for a shipment from “B” (importer).
The risk to the “B” is that “A” could take the money and not send the goods.
or
“A” (exporter) extends a personal line of credit to “B” (importer), only to find that “B” refuses to pay on delivery or delays payment indefinitely.
Trade Finance Solution:
A “Letter of Credit” for the goods, which become “tradeable assets” is issued by the bank of “B” (importer) to “A’s” (exporter) name and with his home bank or finance house. This letter of credit guarantees payment to “A.” by “B.” upon proof of receipt of shipment.
The Letter of Credit forms the legal document and the goods become the Tradeable Asset: The bank has a lien on the goods should they not be paid for.
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Although relatively cumbersome, this form of payment is still one of the most used financial mechanisms for International Trade Finance.
Trade Finance takes many forms both for domestic and international shipping and covers pre and post shipment finance, direct payment to suppliers, loans, revolvers and Letters of Credit.
The system is well known in the UK as a method of obtaining funds to bridge the gap between shipping and payment.
Pros
A tailored option for businesses that need to offer LCs or cash deposits to secure orders with suppliers, both locally and internationally
Funding can be up to 100% of eligible purchase orders
Cons
LC (Letter of Credit) might need to be “cash backed” or have a property asset as security.
The Non-bank Fund Providers do not always require a Property Security. The caveat is that goods must be pre-sold and be a finished (fully manufactured and saleable) product. Anything which requires further manufacturing or packaging is not eligible for this funding option.
To learn more about your funding options and apply for business and property finance, please visit our website here.
Written by
Maurice Sardison
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