For small and medium-sized enterprises (SMEs), identifying and securing the right finance to grow your business can be challenging.
Debt finance remains one of the principal sources of funding for small businesses in the UK. But what are the options? What is the process? And how can you secure the right finance for your business?
Steve Lewis, Investment Director of Maven’s West Midlands’ office, discusses steps businesses can take to make an impression with lenders and identify and attract the right debt solution from Maven’s Midlands Engine Investment Fund (MEIF) Debt Fund, supported by the European Regional Development Fund.
1. As businesses grow, putting in place a suitable funding structure becomes increasingly important – what’s the key to identifying the right finance?
Selecting the right funding can help your business grow. There’s plenty of choice out there so it’s important to keep the below factors in mind when considering your options:
The business growth cycle
The first step is to identify the stage of the growth cycle that your business is in, as this will impact the type of funding you can access. Typically, debt financing is available to companies at the ‘growth stage’ as they are profitable and usually have a positive cash flow. More than anything, lenders want to ensure that you can repay your loan. If you can demonstrate that your business is profitable, then you’re 90% there.
Business goals and milestones
It’s important to be clear on two things before you start searching for funding: how much you need and what you need the money for. Ideally, your business plan will include the non-financial and financial goals your business wants to achieve, outlining any need for capital expenditure necessary for accomplishing those goals. This should ensure that you apply for the right amount of funding, from the most suitable lender for your business needs. Don’t worry if your business plan isn’t comprehensive, Maven can support you in creating the foundations of a plan for your business.
The hard data: looking at the numbers
A company that is in the growth stage will have to show this in its financial data. A lender reviewing an application for funding would expect to see projected turnover, margins and cash flow, as well as clear consideration of worst-case scenarios that outline how, for example, cash will be affected by sales that are lower than expected. These financial metrics will help a lender to understand your business better and are key indicators that show which type of funding is most suitable for your needs.
The right financial advice
There are many benefits to choosing the right source of financial advice for your business, such as the ability to access specialist expertise which can assist the lending process, as well as ensure that your business plan meets the financing criteria that lenders look for. It’s important to do your research as there are plenty of sources of financial assistance on the market, including banks and other advisors. Keep in mind that the best type of financial support will provide you with impartial advice, most relevant for your business.
2. What kinds of businesses does the MEIF Debt Fund invest in?
The MEIF Maven Debt Fund addresses the gap in the market between the lower-risk, lower-return bank debt, and higher-risk, higher-return equity investment. The Fund is an attractive alternative to bank debt and other forms of traditional finance that some growing businesses are unable to access.
The Fund can support a broad range of businesses across many sectors from furniture wholesalers to software developers. What we do look for in the businesses we fund is a strong management team with the skills and ambition to drive the business forward to its next stage of growth. We look for SMEs that are currently turning over less than €50m, with up to 250 employees and can contribute to job creation in the Midlands.
The businesses we support are usually looking for alternative funding, outside of the traditional financing options available. Our focus is providing financial and strategic input as required, whilst helping management to shape and achieve business goals, in order to grow the business and meet management’s strategic aims.
You can take a look at some of the businesses we've invested below:
3. What are the typical advantages to a business obtaining the MEIF debt financing?
When used right, debt financing can provide a number of benefits for a growing business, including the ability for business owners to retain full control of their business, maintain cash flows and access the funds required to accelerate growth.
Benefits of the MEIF Debt Fund include:
- Committed funds backed by the European Regional Development Fund, European Investment Bank and British Business Bank, ready to be deployed straight away
- Exclusively for Midlands-based businesses
- Loan can be refinanced (with no exit costs)
- Funds business expansion projects including; capital expenditure, investing in new products, hiring a new team, growth capital and asset purchase
Benefits of Maven as the Fund Manager
- Each SME appointed a local Investment Specialist who can provide personal, dedicated support based on specific business needs
- Flexible funding options that can be tailored to the needs and requirements of your business
- Investment Specialists will assist businesses in finding the right funding, if it transpires that the MEIF is unable to support you
4. What makes MEIF debt finance different to other debt finance options?
Debt finance for SMEs is often very standardised and inflexible; it can be subject to computer-based credit scoring. However, Maven aim to get to know your business so that we can provide a debt solution that is personalised, affordable and flexible. There are no costs associated with early repayment of the Debt Fund loan, which gives you the opportunity to pay back the loan at your own pace, and once our finance is agreed and committed, we will not withdraw it at short notice, giving you peace of mind over your financial situation.
5. How does the investment process work; from the initial application through to the approval and draw down of the funds?
Our lending process, outlined below, is transparent and typically takes up to 4 to 6 weeks, providing we receive all of the required supporting documents.
- Making an application
There are two ways that you can start the application process:
0121 231 7125 - Birmingham office (West Midlands)
0115 935 2016 – Nottingham office (East and South East Midlands)
2. Reviewing your application
Once your application has been submitted a member of our investment team will check to ensure that we have all the information that we need from you. It is important for an applicant to put as much detail as possible in the application phase including a basic business plan. The more up-front detail provided, the faster the application process will be.
We try to give you a decision as quickly as possible, however, it may take a little longer if we need more information from you to better understand your business.
- Due diligence process
The key purpose of due diligence is to enhance our understanding of information underpinning a potential loan, to allow us to make informed lending decisions. Due diligence starts from the very first interaction we have with a business and the senior management team and continues throughout the entire investment process. Statements and forecasts within the business plan are checked using external validation wherever possible, typically including a review of the integrity and assumptions within the financial model.
- Investment Committee approval
Once your application has passed the due diligence process, and our investment team is ready to move forward, we take your application to our Investment Committee for approval. At this stage, the deal team will recommend funding your business, which the Investment Committee will generally approve.
- Legal documentation
Once your application is approved and the terms have been agreed, our legal team will prepare documentation to implement the funding arrangement. You will then be required to read and sign the documentation in order to proceed.
6. Receiving the loan
Once approved we ensure that the money is paid into the agreed account on the agreed date. We continue to stay in touch post-investment to provide you with any financial advice your business may need whilst on your growth journey.
The MEIF project is supported financially by the European Union using funding from the ERDF as part of the European Structural and Investment Funds Growth Programme 2014-2020 and the European Investment Bank.
Are you looking for funding for your business?
Not based in the Midlands? Maven has significant experience of managing regional growth funds across the UK, including on behalf of the Northern Powerhouse and Finance Durham, and since 2009 has invested over £340 million in more than 180 UK SMEs to support their growth strategies.
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