Wealth & Finance Guide to Corporate Lending by AI Global Media

Wealth & Finance International | Guide to Corporate Lending

Delivering Comprehensive Analysis Lodestone Banking is a bank profit improvement consulting company. We got in touch with Shahin D. Clark, Co-founder and President of Lodestone, who spoke to us about the wealth of experience and expertise they deliver for their clients.

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Welcome to the Wealth & Finance Guide to Corporate Lending Welcome to Wealth & Finance Magazineâ&#x20AC;&#x2122;s Guide to Corporate Lending. From the largest corporation to the smallest niche practice, all businesses constantly seek to expand, grow and sustain their success. To ensure that this happens, providing the right lending strategy for both growth and general business needs is fundamental. Within this guide we take a look at the firms and individuals that deliver truly innovative strategies. We get the inside track from dedicated professionals shaping the world of corporate lending, and find out what it is that allows them to consistently exceed the expectations of their clients. Taking centre stage in our guide is Lodestone Banking, who are a New York based consultancy firm specialising in providing comprehensive revenue analysis for banks. Their President and Co-founder, Shahin D. Clark, talked us through the rigorous strategies and process they deliver to ensure success for their clients. Also featured are a number of leading companies all eager to give their views and share their expertise on this exciting industry. So to get the low down from experts leading the way in their field, please read onâ&#x20AC;Ś

Lodestone Banking Consultancy 6.

Investec 8.

Bridging Finance 8.

C2FO 10.

The Route - Finance 12.

Lark - Risk Management 14.

Investec Growth & Acquisition Finance 16.

Boost Capital

Wealth & Finance International | Guide to Corporate Lending

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Lodestone Banking Consultancy

The New York based financial consultancy firm provides comprehensive revenue analysis for banks. Founded in 1994, Lodestone Banking Consultancy (LBC) has been helping to optimize business processes to boost earnings and maximise shareholder value for clients in the banking sector for over 20 years.

The firm differentiates itself from its competitors by always offering an individualized service tailored to their clients’ needs. LBC does not have a cookie cutter consulting process, which almost all other consulting firms utilize. The company digs deep looking for lost annual revenue finds it - then targets a recommendation to the very point in their clients’ processes that needs to be changed. Once corrected all of the potential revenue is sent to and registered on the bank’s General Ledger.

Through the company’s unique discovery process, the organization locates overlooked recurring revenue opportunities without layoffs, branch closings, higher fees, changes to loan loss reserve or renegotiating vendor contracts. This allows banks to offer the best service to their customers whilst also securing their own futures.

LBC considers it to be a fact that all financial institutions are losing a significant amount of revenue. Annually for banks under $10 billion, most are losing >$1 million per $1 billion in assets which can be captured with LBC’s consulting practice. For banks over $10 billion, this potential drops a little, however there is still a considerable revenue opportunity to go after. This lost revenue can be captured without increasing fees or cost cuts of any kind. This is the cornerstone of LBC’s work.

Shahin D. Clark is the President and co-founder of Lodestone Banking and has over 30 years of bank consulting experience with financial institutions in the United States, Hong Kong and Puerto Rico that range from $200 million to $400 billion in assets. Everything Lodestone Banking does revolves around products that Ms. Clark has developed and her unique approach to bank consulting that adds annual revenue over $1 million per $1 billion in bank assets without fee increases, staff cuts or cost cuts of any kind, which is a phenomenal achievement.

New product: Profit Isolator In terms of revenue, banks are like a sieve, no sooner do they plug a hole that another one opens. It is critical to have data mining tools that can quickly track financial institutions’ key profit drivers on a monthly basis, to find and correct loss of revenue in key general ledger buckets such as loans, overdraft, electronic banking, service charge fee income, trust, etc.

Lodestone Banking has had an exciting year, having landed their largest client to date and signed a partnership agreement with one of the largest CPA consulting firms in the USA to bring LBC’s unique consulting practice to all their banking clients, which include several top ten financial institutions. Therefore the next year promises to be an exciting time for LBC. The firm is expected to triple its annual revenue and its employees during the next 12 months.

To date, bank management has not had accurate data mining reports generated from queries. Bankers can see on their general ledger how the bank is performing bank-wide, however without these reports they do not know where, why, and how they are losing this revenue.

Currently the bank consulting market is an exciting and vibrant market to work in. Bankers today face challenges that they must surmount if they will continue to grow, be profitable and improve EPS. For the past eight years very low interest margins have put a squeeze on making profitable new loans and in the USA this will continue for several more years. LBC has navigated this difficult market by offering services which improve each client’s ability to increase their lending capability while improving loan quality and revenue.

In recent months, Lodestone Banking has developed Profit Isolator which are data mining queries that isolate and quantify revenue by specific areas such as branch and region. These queries clearly show bank management the precise location and amount of their revenue by generating reports. These reports pinpoint the specific part in the revenue stream that is responsible for lost revenue and need direct attention in order to plug the hole and capture lost revenue. Profit Isolator automatically produces management reports that provide a detailed step-by-step road map to each profit driver’s performance.

The company believes that it is vital for any business considering moving into corporate lending to ensure that they are ready to fulfil all the regulatory requirements and that their organization, including the lenders, are fully aware of the compliance and risks involved in the process.

1. 2. 3. 4.

Corporate lending is a very different environment than personal lending, with the size of the loan and approval requirements being the main differentiators. Personal lending in the USA is highly regulated relative to rates and fees that can be assessed on loans. Business and corporate loans differ mainly in the loan amount, associated risks and bank’s tolerance as well as the level of credit qualification needed from the borrowing entity.

Identifies lost revenue for the specific profit drivers. Isolates the specific unit requiring immediate attention. Calculates and provides comparative Profit/Loss income and ratios. Provides reports that empower management with solutions to increase their revenue.

Financial institutions can track their loan revenue by its specific source allowing the bank to utilize Profit Isolator reports as part of each lender’s performance measurement.

Wealth & Finance International | Guide to Corporate Lending

Investec Growth & Acquisition Finance

Wealth Creation & Realisation By Gary Edwards, Investec Growth & Acquisition Finance. Entrepreneurs and shareholders in mid-market businesses have two key priorities: wealth creation and - when that has been achieved wealth realisation.

Turning to the second priority, wealth realisation, traditional financing involves similar limitations. Typically, it requires a 100% or majority sale as high street banks are averse to allowing shareholders to take money off the table when the business has any requirement for debt. In some cases the acquirer simply adds leverage to the business to pay for the majority of the transaction – an obvious limitation or structural defect when existing shareholders would rather retain part of their equity interest and simply release part of the equity value created by their efforts to date.

Wealth creation for the mid-market companies we support typically follows investment, which can be used for a variety of purposes: sometimes firms can achieve meaningful improvements to valuations by creating efficiencies, while others might need specific investments in technology to remain competitive or overtake their peers, or to make strategic acquisitions.

To address all these problems, asset-based and cashflow lending have emerged to provide solutions that meet the wealth creation and realisation needs of entrepreneurs and shareholders, while also matching the needs of the business.

Whatever the circumstances, mid-market firms have traditionally had access to two sources of funding for the purposes of wealth creation: the addition of further equity to the existing funding mix and the high street bank market for conventional loans.

Asset-based lending provides financing uniquely designed to match a company’s needs. The tools involved include revolving facilities, which can be drawn down and repaid up to a pre-determined limit as required. Based on receivables and inventory, revolvers help businesses plan for seasonality and growth. Loans against fixed assets and cashflow allow for investment and acquisitions with a lower overall fixed amortisation requirement.

Both approaches have limitations. Further equity dilutes the stake of existing shareholders, often with ramifications that go beyond the immediate need for funding. In cases where the investment period is relatively short before positive cashflows result, this means that equity injections remain locked into the business long after their benefit has been realised. Bank finance poses a different challenge. High street banks invariably judge borrowers on the basis of historical business performance – the very thing that a forward-looking business is seeking to improve. Traditional banks are renowned for setting lending policy designed for the average business and average growth, but I am yet to meet an entrepreneur who seeks merely to be average.

For those seeking to create wealth, this provides much-needed flexibility and supports planned growth as the revolving facilities support ongoing investment without diluting existing shareholders’ equity or prejudicing future value. Similarly for wealth realisation, an asset-based and cashflow debt approach supports shareholders wishing to diversify investments by releasing value, with the added benefit of retaining equity in the company they have built up. This also carries obvious benefits for the business – the value of many entrepreneur-founded and led firms is supported by the continued involvement of the founders.

Business leaders in the mid-market are increasingly turning away from the backwards-looking approach based on historic performance, in favour of this innovative approach to debt, which is designed to meet the needs of entrepreneurs and shareholders while still supporting the achievement of future business objectives.

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Wealth & Finance International | Guide to Corporate Lending

Bridging Finance

A Business Guide to Alternative Finance Chris Baguley, managing director at specialist finance lender, Bridging Finance, talks about the different type of loans which are available to businesses. Confidence in the UK is growing and the outlook is continually brighter for businesses across the country. ONS posted annual growth of 2.6% for the UK between Q3 2014 and Q3 2013 clearly showing our economy is recovering since the financial crisis.

So once you’ve worked out what type of loan your business needs, what are the next steps?

With increased optimism comes greater willingness to take chances. Business owners and entrepreneurs are starting to take more risks in order to make better returns but high street banks still have tightened belts when it comes to lending. Help from a specialist funder could provide a much needed lift to help turn these risks into successes.

Much like going to a bank to apply for a business loan, there are a number of elements you need to prepare before approaching a short-term lender for any type of specialist loan.

Be prepared

1. The amount It’s always important to be realistic about the amount you need. With a short-term loan you can borrow anything from around £30,000 to in excess of £5million but make sure you fully assess what you need on day one, as terms are fixed for the period, which is typically up to a year.

It’s not difficult to see why alternative lending is helping grow businesses so successfully. Here’s a guide to the different types of loans businesses can consider: Raising capital - Otherwise known as a short-term cash flow facility, this is a loan for borrowers with a good level of security. It is taken out against an existing residential investment or commercial property in order to raise finance to allow businesses to buy plots of land as fast buyers, negotiate discounts and purchase equipment or stock.

2. The terms Short-term loans are designed to be exactly that, and are usually paid back within 12 months so you will need to have a clear exit strategy. How do you plan to repay the funding at the end of the period? Interest can be serviced each month or rolled up to aid serviceability. Look out for lenders which offer flexibility so that if you go over the average loan time, you know exactly what your terms will be.

Bridge-to-let - This type of loan is primarily used in the auction room when purchasing commercial property that would be considered ‘unmortgageable’ by traditional banks. Most lenders will simply refuse to finance a place that they consider tenants couldn’t move into immediately and this is where a bridge-to-let loan would come in. Assess what work will need to be done and what the associated costs will be, then talk to an expert about whether you’re going to be able to get long-term funding once the work is done.

3. The specifics What is the loan needed for? There are a huge number of uses for shortterm finance, such as residential investment/auction purchases with short completion deadlines, business and land acquisitions, funding to pay tax liabilities or business cash flow. You need to have a clear outline to present to your lender on what the money is going to be used for and why the funding is vital for your business now.

Refurbishment loans or development finance - These kind of loans include conversions, redevelopments and new builds, from small residential property improvements to large commercial constructions, following which, borrowers will refinance with traditional buy-to-let mortgages. Refurbishment loans will tend to be on conversions and structural changes, whereas development finance is funding for heavier construction projects and is usually advanced as a loan towards land purchase or in stages for development costs.

4. Trusted sources If it’s your first time applying for a short-term loan, you may be unsure about which lender to approach. It’s tempting to snap up the first offer you come across but always take the time to compare rates and use trusted sources, such as your lawyer or accountant, for advice. 5. Have your documents prepared There are certain documents you will need to provide for your shortterm loan to be processed. Have your ID (either passport or driving licence), income verification and copies of your building insurance on hand to start the process smoothly.

Auction finance – Auctions provide great opportunities for businesses to bag a bargain, but you have to be prepared to move fast. Auction finance is for those who aren’t lucky enough to be able to fund an auction purchase with cash, so this kind of short-term loan allows borrowers to bid for sites with confidence that they will have the funding within the short time period required for completion.

Contrary to popular belief, bridging finance isn’t solely for property professionals as some might think. Existing property can be used to raise finance in other ways. For example, we’ve established ourselves 8

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as the first port of call for company directors who need quick funding to pay tax bills, or to meet the costs of stock and equipment where suppliers are demanding upfront payment. This fast-moving and varied marketplace means the specialist lending market is having to take a flexible approach to lending. As such, it is continually updating products and services in line with customersâ&#x20AC;&#x2122; changing demands, so if youâ&#x20AC;&#x2122;re looking for alternative finance for your business, always make sure you do your research and seek professional advice.

Wealth & Finance International | Guide to Corporate Lending

Invoice Discounting for SMEs By Mark Thomas, Director, C2FO

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A Guide To Corporate Lending Traditional sources of liquidity can no longer be relied upon to provide adequate working capital for businesses. However, technological advances and innovations designed to solve liquidity problems are gaining momentum, particularly in the invoice discounting space. As more and more forward-looking firms put these new practices into place, it’s possible to foresee a future where this technology becomes the standard, delivering fundamental rewards for both suppliers and their buyers working in increasing collaboration.

mid-sized suppliers, as banks generally restrict this service to larger companies due to the logistical challenge of registering and administering a large volume of small suppliers. Typically, this method of funding fails to cascade deeper into the supply chain to benefit the businesses who are hurting most from lack of access to liquidity. Factoring is more widely available to smaller businesses because it does not rely on an SME’s buyer signing up to an SCF programme with a bank, and factoring companies offer this service to businesses of all sizes. However, it comes with its own challenges and is not a silver bullet to SMEs’ problems. Some businesses cannot sell their invoices to a factor due to the terms of previous loans (debentures), and a significant amount of administration is generally required to set up this service, meaning potential delays in accessing cash when businesses need it most. SMEs should also be very careful to make sure they understand the full cost of factoring and include any fees in their calculations. Once fees are taken into account, factoring APRs are almost always double digit, and often much higher.

Access to liquidity is a serious problem for SMEs The lack of liquidity available to SMEs to fund their operations is a well-documented problem. The knock-on impact of small businesses being unable to grow is considered a major factor holding back the global economy. In the absence of adequate supply from traditional lending sources, invoice discounting is becoming an increasingly popular way for SMEs to improve their cash flow. Encouragingly, a number of new invoice discounting models are emerging to facilitate this trend. However, as with any emerging and fast-evolving market, some models are more suited to the needs of SMEs than others. Businesses should be careful to understand which options offer them the optimal combination of low-cost funding and maximum flexibility.

Invoice dynamic discounting – a more promising approach There is a far newer and more promising invoice-monetizing model that offers early payment to SMEs, namely ‘dynamic discounting.’ Currently a significant growth area in which multiple platforms are emerging, dynamic discounting allows a buyer and supplier to establish an early payment date without changing the agreed upon payment terms, with the discount amount being calculated ‘dynamically’ based on the number of days left until an invoice is due. This again can be an effective source of funding for SMEs but, in truth, the term ‘dynamic’ is a misnomer. In fact, terms offered to suppliers are based on a ‘static’ APR, as defined by the buyer, which the SME merely has the option to take or leave. As a result, the underlying problem with these so-called ‘dynamic’ discounting models is that the supplier has little control over the cost of this funding source.

Traditionally, banks have been the primary source of working capital funding for SMEs, either via loans or overdrafts. While these options remain viable, it is well known that banks are increasingly unwilling or unable to lend to SMEs, as they look to rebuild capital bases and de-risk lending portfolios, in part driven by regulatory guidelines (e.g. Basel III, a global, voluntary regulatory framework on bank capital adequacy, stress testing and market liquidity risk). It is estimated that bank lending to SMEs has fallen by up to 50% in many European countries since 20081. This liquidity challenge facing SMEs is compounded by endemic late payment and ever-increasing payment terms.

A more effective concept that solves this problem is a true dynamic discounting platform that provides a working capital marketplace, giving suppliers control over the rate they are willing to discount their invoices in exchange for early payment. Typically, using such a marketplace solution means an average APR of under 6%—an extremely attractive rate to most businesses. This concept of truly ‘dynamic’ discounting puts the supplier in control and provides them with a cheaper source of liquidity – as and when it is needed. This leads to higher supplier uptake and, therefore, more long-term income potential for buying organisations, by providing valuable liquidity to more SMEs.

Fortunately, innovative new lending models are springing up as alternatives to banks in response to this problem to provide new funding options to SMEs. Funding Circle and On Deck are leading examples of this trend. Peer-to-peer lending services have already loaned billions of dollars to businesses. Unfortunately, those loans are often at rates above 10% APR and sometimes as high as 50% APR when fees are taken in account, although some, like Lending Club, offer more competitive rates. According to a recent article in the Financial Times, “Lending Club is at the forefront of a new breed of lenders which say they can supply loans for less — by cutting out the cost of branches and avoiding reserve requirements — while providing consumers with a quicker, less paper-intensive process.”

It is no secret that invoice discounting frees SMEs from traditional, more expensive forms of borrowing or invoice financing, helping end the liquidity challenges that so often put the brakes on small businesses’ growth plans. Created as a viable liquidity source for suppliers of all sizes, dynamic discounting now provides a much needed – and increasingly popular – alternative source of financing. Companies in the US and the UK are already accelerating billions of pounds worth of invoices per month via dynamic discounting, in order to improve cash flow. The more innovative, marketplace-based approach to dynamic discounting gives SMEs the optimal combination of low-cost funding and maximum flexibility to accelerate payments on terms of their own choosing. The win for corporates is that they can significantly de-risk their supply chain while also generating a risk-free yield on their cash of c.5-7% APR. The win for SMEs is they access the liquidity they need, when they need it and at a lower cost than alternative options. These businesses will immediately improve profitability and secure their operations.

These alternative lending models are not, therefore, helping to solve the liquidity problem as efficiently as they could and their volumes remain relatively insignificant in the grand scheme of the huge liquidity problem facing SMEs. This may change, but the truth is they do not yet fill the lending gap left by banks. Invoice financing—the options Given the difficulties in accessing new debt, SMEs are also embracing the idea of monetizing non-due invoices to provide them with liquidity. The principle underpinning this is that suppliers discount their original invoice value in return for immediate payment—and many different mechanisms have been developed to facilitate this transaction. Supply chain financing (SCF), where a bank advances cash to a supplier as soon as the buyer approves the supplier’s invoices, and factoring, where a third party purchases the invoices, have existed for years. While these models can work well for some companies, they are not suitable for all businesses. For example, SCF is rarely an option for small and

1. Ott, John and Jeffrey Anderson. “Restoring Financing and Growth To Europe’s SMEs.” Bain & Company and Institute of International Finance: Oct 10, 2013 11

Wealth & Finance International | Guide to Corporate Lending

The Route - Finance

The Route – Finance Sees Pipeline Increase Throughout 2015 - Alternative lending: the way forward for today’s growing SME - The Route - Finance launches new book ‘Be The Bank’

Director, said: “Working with The Route - Finance has been a positive experience. The due diligence process was quick and thorough, and the money raised was used (along with money raised from other sources) to buy out the existing shareholders, for start-up costs and to have a reasonable sum of working capital to grow the business.”

The Route – Finance (www.theroute-finance.com), which provides alternative funding for small and growing businesses, has seen its pipeline of requests for finance increase incrementally throughout 2015. As of 1st June, the company was processing 11 separate requests for loans totalling over £25 million, which is more than double the number and volume of serious enquiries for the same period in 2014.

Atanas Krastonoff, a long-term Route Member, who has invested in several projects, said: “The Route - Finance is targeting the long-term relationship rather than maximising fees. In addition to the aligned interests, there is proper expertise to effectively identify those best cases and discount the average/subpar ones. It’s a very solid platform.”

These figures support the recent news that the alternative finance industry is fast becoming an economic success story. The UK is, by far, the largest in Europe for alternative finance, showing an average annual growth rate of 159% - outstripping the rest of Europe combined. And, according to the UK Bond Network, 50% of SMEs say that alternative finance is opening up new entrepreneurial opportunities.

Director and Founder of The Route, Richard Admiraal has recently written a book entitled, ‘Be The Bank – How To Earn High Returns Securely By Lending To SMEs’ - directed at private investors and business owners and directors.

William Fleischmann-Allen, Head of The Route – Finance, said: “One of the repercussions of the credit crunch has been the negative impact of funding for small businesses. Increased capital requirements and smaller balance sheets for banks have combined to deny credit to companies looking to expand in the UK’s growing economy. It’s a fact that SMEs are no longer turning to the banks as their first port of call when it comes to investing for growth.

The book provides readers with knowledge and understanding of how to invest in small business and also why the need to invest has arisen. It looks at what SMEs are, how The Route - Finance works for SMEs and investors, and how to understand asset based financing. About The Route - Finance The Route – Finance provides debt and equity investment via its Private Debt Platform (PDP) and Equity Investment Venture (EIV) propositions. The company was formed in 2008 and, since then, has raised over £36 million.

And, where the banks are failing, alternative finance platforms - such as The Route – Finance’s - are meeting the demand. “Since inception in 2008, The Route - Finance has raised over £36 million via its Private Debt Platform. However, what we are now seeing a marked increase in the requests coming through from SMEs and the amount that many are seeking to raise. These are positive signs for the economy and the sector, as well as our own investment community.”

The PDP evolved as part of The Route – City wealth club, a wealth management company, which was set up in 2000 and is based in the City of London. The Membership of the club is formed exclusively from High Net Worth individuals. Members pay an annual subscription to gain access to a suite of services, including the opportunity to participate in investment projects sourced by The Route – Finance.

“In addition to an increase in demand from the property and leisure sectors, there are currently some very exciting renewables projects. Generally these are seeking finance to develop and expand some of the emerging alternative and renewable energy technologies,” added Fleischmann-Allen.

The PDP aims to bring together these private investors and SMEs businesses by matching expanding companies with individuals looking for strong returns- returns not readily available in a low interest rate environment and in which many asset classes appear overvalued.

One SME that has benefited from investment via The Route – Finance’s Platform is ES Global, which specialises in the delivery of dynamic stages, temporary structures and expert project management. Olly Watts,

The PDP provides short-term (6-24 months), secured loans, typically 12

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between £1 and 3m, with probable, realistic capital exits for repayment of the loan capital. An ‘in principle’ decision can usually be made within 24 hours, subject to the provision of the required information needed to pass The Route – Finance’s due diligence assessment. To date, every secured loan The Route – Finance has released to its Members has been oversubscribed.

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Lark - Risk Management When running a business, Directors and Officers of SMEs should be aware that just like bigger and established companies they are subject to the same kind of regulations. Recently the number of Directors and Officers claims are increasing, however only a very small percentage of companies are insured against a Director and Officer claim. In the case for SMEs where they do not have an HR or Legal team to help resolve claims, neither do they have the insurance policies geared to mitigating claims and handling the aftermath.

their role. Claims could come from an employee, regulators, customers, shareholders or lenders. It’s fast becoming protection that all companies buy; and will also include the legal costs of defending a claim made. Health and Safety - clearly this will vary greatly depending on what sector you’re involved in and what your business activity is, but be aware of your obligations and your responsibilities Once an SME has launched and is developing, the risks surrounding it change and some increase. Additionally as a business becomes more successful, there will be more to protect.

Directors of SMEs need to be aware that insurance policies like legal expenses and professional indemnity do not help protect their personal assets and can not always cover the costs of a claim or incident. Stephen Lark, the Managing Director of Lark (Group) Limited a UK based insurance broker, discusses the different type s of cover SMEs may need in regards to the range of risks an SME may be faced with, whether they have just launched or are established in their chosen industry.

Key Person cover – This gives the company protection against financial loss (or increased cost such as recruitment etc.) through accident or illness of key people. Cyber Liability - this could be as relevant to a start up, but cyber attacks are becoming more frequent and high profile. For companies holding sensitive client data or with on-line sales this is becoming a policy which should be bought.

Of recent, many start ups have turned to crowdfunding to launch their business. Crowdfunding allows many investors to support and fund a project or start up. This form of investment also presents increased risk. Funding a start up this way means more external shareholders or lenders are involved which increases the risk of a claim in the event that the business fails to perform. There is now a much greater chance of a shareholder or lender looking to apportion blame for their loss, and hence the increased importance of Directors and Officers insurance.

Raising funds - new shareholders or lenders will be relying on previous accounts, business plans and statements made by the Directors about the business and its plans. These will be scrutinised closely if things don’t work out as planned so make sure that you have protection in place via your Directors and Officers policy.

Aside from the obvious exposures - any business property or stock should be insured - for smaller companies who are operating from home they should not rely on home insurance unless they’ve checked that business items are covered. As the business grows this becomes more important, for example when you get your own business premises. Is the company responsible for any goods whilst in transit? Or do you have company vehicles or people using their own vehicles on company business? Accordingly, it is necessary to look beyond insuring the physical property, and look to those areas that could cause financial loss to the business and potentially affect its long-term viability;

Where is your company operating - think about travel insurance needs and if you are operating in higher risk territories, you should also think about kidnap and ransom insurance. You’ll need to ensure that you are buying the right protection for your business as it grows and the role of Disaster Recovery planning increases. You’ll need a robust plan to get your business up and running again as quickly as possible, and to minimise your loss and the impact on your customers who, for example, may find it very easy to switch to an alternative supplier in the event that your company suffers a serious fire or flood. Take advice on your plan, keep it up to date and test it regularly to make sure that it’s still appropriate. Think too about PR, and plan how to notify and inform employees, suppliers and customers in the event of a serious incident.

Business Interruption - think about what impact a serious claim could have on your business, whatever the size, and what financial assistance would be needed to carry on in the event that the business suffers an unexpected event (e.g. damage, breakdown, denial of access etc.). It is necessary to have appropriate cover in place. Is your business reliant on one supplier, manufacturer or client? If so, make sure that your business has protection in place should they have a claim that prevents them supplying or buying from you.

Since being in the risk industry it has become clear that generally people, and perhaps especially in smaller businesses, don’t consider the insurance implications at an early enough stage in the process.

Liability exposures - when the Company has employees, you’ll need Employer’s Liability cover as a legal requirement, and also Public Liability cover to give the Company protection against any claims from third parties. If you’re selling a product, you’ll need Products Liability cover; and the cost of this will vary according to what your supplying, to whom and where they’re based so do investigate this before accepting a new contract if it means trading in a different business sector or country.

Make sure that your insurance protection is right for your business that you understand the risks involved in what you do and then that you are properly insuring those risks that are too great for your business to carry. Take professional advice, and tell your broker how your business is changing - new products, new contracts, operating in new countries, new sites, and new sales methods. It is important for the Management team including Directors and Officers to really think about the benefits of insuring themselves as well as the company against the risks they face. The more thought and notice that you can give to this the better. Look to have one person in the business that is ultimately responsible for risk and insurance - this should help to give focus to these areas and to keep things under review as the business changes and grows.

Professional Indemnity - if the company is providing advice / expertise then you should be buying this protection in case a client or third party suffers financial loss as the result of your advice. In some business sectors you’ll be forced to buy the cover through regulation, and in others it is often seen as a requirement in contracts with clients. The policy should also provide protection against the costs involved in defending a claim. Directors and Officers - both Directors and Officers of companies can be held personally liable for actions that they take whilst carrying out 15

Wealth & Finance International | Guide to Corporate Lending

Investec Growth & Acquisition Finance

Wealth Creation & Realisation Gary Edwards, Investec Growth & Acquisition Finance

Entrepreneurs and shareholders in mid-market businesses have two key priorities: wealth creation and - when that has been achieved wealth realisation. Wealth creation for the mid-market companies we support typically follows investment, which can be used for a variety of purposes: sometimes firms can achieve meaningful improvements to valuations by creating efficiencies, while others might need specific investments in technology to remain competitive or overtake their peers, or to make strategic acquisitions.

The standard debt approach is to structure a loan which is repaid in two ways: partly through amortisation, when the debt is repaid in instalments, and partly through a final “bullet” payment at the end of the loan period. This very design of this structure requires adherence to a fixed plan, leaving little room for variation, be it based on favourable or negative developments in the business, and zero tolerance for plans that need to adapt to market conditions or to take advantage of future opportunities. Being tied to a bullet repayment restricts future investment, as a cash build-up is required to meet that commitment. Turning to the second priority, wealth realisation, traditional financing involves similar limitations. Typically, it requires a 100% or majority sale as high street banks are averse to allowing shareholders to take money off the table when the business has any requirement for debt. In some cases the acquirer simply adds leverage to the business to pay for the majority of the transaction – an obvious limitation or structural defect when existing shareholders would rather retain part of their equity interest and simply release part of the equity value created by their efforts to date.

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Wealth & Finance International | Guide to Corporate Lending

SMEs A In

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Bridging Boost Capital Finance

Are Growing Confidence

– And Alternative Finance Can Help The Trend Written by Norman Carson who is Boost Capital’s Director of Business, www.boostcapital.co.uk

What is confidence? A gut feeling you’re getting things right. Having a strong belief you know what you’re doing and where you’re headed next. In general, a sense that life is going your way or that you can tackle whatever it throws at you. Conversely, when you’ve had a few knocks, it can be hard to summon up the energy and determination to push yourself beyond what is safe and familiar. It’s no different for businesses than for the average man or woman on the street. And the good news is that after several years of relative trepidation, the UK’s SME community is back on buoyant form, growing at a healthy rate and feeling hopeful about the future. A recent report from the Enterprise Research Centre found British SMEs are growing at the fastest rate since the beginning of the economic downturn. They’ve measured growth in terms of job creation, start-ups surviving past the three-year mark, plus the proportion of those businesses that reach a turnover of £1 million and existing firms making between £1 million and £2 million that increase turnover to £3 million. These are material signs of success and such positive developments are creating levels of business confidence near the post-recession high, according to the latest Lloyds Bank Business in Britain survey. Good feelings are being fuelled by increasingly healthy sales, incoming orders and expected exports. More than a third of smaller companies intend to grow their headcount over the next six months and, importantly, about one in three also plans to increase investment spending. That’s where we and our peers in alternative finance come in. Demand from small firms for lending increased significantly in the second quarter of this year Bank of England data shows, no doubt as a result of these can-do feelings that currently abound in the small business community. The Bank’s experts expect SMEs to ask for even more borrowing in the third quarter of 2015. Bank lending has increased to small and medium enterprises since the beginning of the year, the British Bankers’ Association has found – and not before time – but too many firms still fall foul of the banks’ rigid loan approval criteria. We hear of sound business concerns being deemed inadequate by their bank because they operate in too risky a sector, they’re punished for lacking in assets or penalised for trading in the wrong way. Which is precisely why more businesses are turning to alternative finance. Of course, we take a different approach, look at the overall health of a company and we don’t ask for security against our loans. It’s one of the ways we set ourselves apart from our more traditional peers and I’ve talked before about how the banks’ miserly attitude towards SMEs is, in fact, a gift for alternative finance providers. Their loss is our gain. And there’s evidence that having discovered ways of raising capital away from the high street banks, small business owners don’t want to go back to the old ways of borrowing, always going to the bank manager first, cap in hand. As an industry, we must build on this important progress, continuing to play to our strengths, those that small firms say they appreciate – the greater flexibility we offer in comparison with traditional finance institutions, as well as the simple fact we’re genuinely keen to work with smaller companies. I’m truly heartened that British businesses are finally finding reason for hope, optimism and general good cheer. That’s not to say that SMEs don’t still face hurdles to business growth, not least of which is the issue of hiring talented people with the right experience and skills. The Lloyds study revealed business owners believe recruiting skilled workers is the hardest it’s been in seven years. Alternative finance providers can’t solve the skills gap and neither can we find the perfect candidates to fill small businesses’ vacancies. But we are making a big difference to how companies can raise funds for investment and we’re giving their feelings of confidence foundations in reality by helping them finance their expansion plans. Some of this confidence is created by economic conditions, of course – a period of historically low interest rates have had a part to play in maximising the opportunities of a buoyant UK economy for one thing. But sentiment has a place here, too. Some business owners feel brighter because they can see their order books filling up, while others are driven by a less tangible quality – hope, ambition, a belief in what can be achieved with a little determination. It is up to us as an industry to tap into this positive attitude and help these optimists achieve their goals. Success breeds success, they say, and confidence is certainly infectious. Our role is to feed and enable this virtuous circle of optimism, effort and reward. The outcome will be great for both us and the businesses we serve.