Who here does funding of smaller M&A deals (in the UK)?

[Clinton]

I'm putting a list together as I often get requests from not just wannabe buyers but vendors and brokers as well.

That's not my market at all and I'm sick of fielding their questions so I'm going to write an article for my website and just set up autoresponders to send future enquiries a boilerplate reply pointing to that article.

Do you fund acquisitions of smaller businesses, as in debt funding (not equity)?

If so, what are your criteria? Minimum size of deal? What else?

If you fund small deals and want a free link from my website, please answer the questions above in your reply. If you can't post the link publicly, post the rest of your answer here and send me the link by DM. Thanks.

 

[Mark T Jones]

I know a number of brokers who 'kind of' do this - it's usually an informal mix of asset finance (refinance), invoice finance and possibly other products rather than a neat package.

@Gordon - Commercial Finance is one of the respectable ones...

 

[PaulThompson]

We do that too - I think with 28 years experience and 7 x UK best broker awards we're respectable?
As Mark says it's normally a combination of different products and often involves repaying existing funding so giving criteria is nigh on impossible.
Always happy to discuss and review potential cases though.

 

[Clinton]

giving criteria is nigh on impossible

I don't believe it is. I believe a fair bit can be articulated.

I don't have individual cases to bring to you for "discussion and review", and I am unlikely to get them as I'm not a business broker and don't take on advising through the sale or purchase of businesses.

But I do have a ton of content on my site for small business owners considering selling their business. The idea is that they go to my website, read that content and then go sell their business themselves (without bothering me).

I thought that adding an article about financing available - what works and what doesn't work - would help both sellers and buyers visiting my site. However, I was hoping for my article to be a bit longer than "You can get financing from Paul, but it depends".

 

[PaulThompson]

Let me put some general details together for you Clinton - I'll get back to you shortly with it..

 

[PaulThompson]

Hi Clinton
Quick overview for you, hope this is helpful.
For M&A deals we use a combination of the following products, depending on the finance already in the business, the business sector and the amount of funding required for the purchase;

1. Invoice finance can generate up to 90% of the debtor book - a typical minimum of 80% for less favourable acquisitions!
2. Sale and leaseback of plant, machinery or vehicles - again, if there are good quality assets with some life remaining it's typically possible to raise funds against the value of them.
3. Other cash flow products - some lenders will look at the cash generation of the business and advance funding against this.
4. Property can also be leveraged, either within the business or the director's personal property can be used as security for a short term loan or longer term mortgage to the business - A secured business loan is not something a high street mortgage lender would provide, there are specialist lenders in this space, lending up to 75% of the property value (less your existing mortgage if you have one).

That's why it's a bit more complex than a typical "you can borrow x% of the business purchase price"

I hope that's helpful, very happy to talk if you'd like to discuss further?

Take care
Paul

 

[Clinton]

That's helpful, thanks Paul. I'll mention you in the article and give Acorn a link.

What about PGs? Would you require PGs on any of those options?

Also, what size is too small?

Oh, one more question. I can guess the answer to this, but if you state it in black and white, I can quote you.

Do you offer the (USA) SBA type loans ie funding a part of the acquisition?

Many buyers seem to think that if they're putting in x% and they're getting y% in seller financing, they can walk into a lender and just get a loan to cover the rest! (For SBA 7(a) loans - less than $50K - no collateral is required!)

 

[Mark T Jones]

That's helpful, thanks Paul. I'll mention you in the article and give Acorn a link.

What about PGs? Would you require PGs on any of those options?

Also, what size is too small?

Oh, one more question. I can guess the answer to this, but if you state it in black and white, I can quote you.

Do you offer the (USA) SBA type loans ie funding a part of the acquisition?

Many buyers seem to think that if they're putting in x% and they're getting y% in seller financing, they can walk into a lender and just get a loan to cover the rest! (For SBA 7(a) loans - less than $50K - no collateral is required!)

I think Paul has given a great summary of how it works - and a reminder to me of why I'm not in this market.

Beware any broker who shouts about 'no PGs' or unsecured loans - you can be sure that those will be available to less than 1% of applicants (they are hoping to sway the rest)

Match funding drew its last breath with the banking crisis. It was never really a facility that could be offered, more an acceptance that certain underwriters would take a view on it.

Given the nature of these smaller deals, PGs will be a near universal requirement- unless the customer can provide a compelling reason why the requirement is excessive (the wife won't let me isn't a compelling reason) - however on invoice finance or sale and lease back, the underwriting is such that they should only be called on if the customer has been very stupid.

As you are well aware, this end of the market attracts dreamers and chancers in their droves - people who'd love to buy a business, just as long as it doesn't require any risk or commitment on their part.

Any respectable/reputable broker will manage their expectations from the outset. Dodgy ones will tell them what they want to hear...

 

[PaulThompson]

Thanks Clinton - Glad that's useful
The lower limits tend be be £25,000 for sole traders but constituent parts of the funding for companies can be as low as £3,000 - so that can give us a lot of flexibility.
The British Business Bank currently offers the Recovery Loan Scheme which operates in a similar way but not all lenders are signed up for it.
That means that in most cases PGs would be expected, but we can insure against them being called in, I'd recommend this to mitigate the risk

"Many buyers seem to think that if they're putting in x% and they're getting y% in seller financing, they can walk into a lender and just get a loan to cover the rest! (For SBA 7(a) loans - less than $50K - no collateral is required!)"

That is not impossible, so long as there are good reasons for the loan and "security" in the form of existing cash flow. We'll work to highlight the positives!

Please go ahead and quote me! I need to write my own page on this, it's been lost in edits of the website!
Take care

 

[PaulThompson]

Thanks Mark
If I had £1 for every dreamer since I started in 1997......

 

[PaulThompson]

The British Business Bank currently offers the Recovery Loan Scheme which operates in a similar way but not all lenders are signed up for it.

Of course I should have said Growth Guarantee Scheme, same thing essentially but they do like to change the name from time to time to make it look like they're doing something!

 

[Ned Barker]

You should consider reaching out to a finance brokerage such as Funding Bay.

 

[Mark T Jones]

You should consider reaching out to a finance brokerage such as Funding Bay.

An odd way of referring your company?

 

[fisicx]

You should consider reaching out to a finance brokerage such as Funding Bay.

You mean your company. That you are promoting. Which is explicitly forbidden in the forum rules.

 

[PaulThompson]

You mean your company. That you are promoting. Which is explicitly forbidden in the forum rules.

If he could have bothered reading the whole thread....