Today’s guest blog post comes from Barclays, who are launching an innovative finance product providing businesses loans of up to £5m…
As a global hub, the UK is second only to Silicon Valley, with specialist and sector-agnostic finance houses pouring millions of pounds into early-stage businesses to drive growth. Fast growth businesses are emerging as a result and entrepreneurship is beginning to flourish.
For instance in the North East the volume of high-growth companies rose by 25.5% in the year to March 2014 – the only region in the UK to report a rise bar Northern Ireland and the overall number of enterprises rose by 5.3% (Source: Barclays and Business Growth Fund Entrepreneurs Index)
Within the UK, fast-growth companies have traditionally relied on equity investment to fund growth. However, there are a growing number of companies for which a modest amount of debt financing at this critical stage in their life cycle would be beneficial.
Businesses typically take 15 years to go through the growth cycle from start-up to large corporate; however a fast-growth technology business for instance can often achieve this in a much shorter time frame with financing rounds occurring at shorter intervals providing Barclays with debt opportunities at earlier stages.
No bank today offers a tailored proposition that attempts to seamlessly deliver a joined-up “micro to IPO” service. However we intend to change that…
Barclays is launching a fast-growth innovation finance product, providing businesses loans of up to £5m, repayable over a variety of terms provided private equity, venture, or angel capital has already been secured.
The main advantage of bank debt over equity investment is that it supports growth ambitions without having any particular control over the way the company is run, allowing the business to concentrate on its accelerated growth trajectory. It is also a cheaper method of financing (as opposed to equity) which also leads to dilution of share ownership for existing management.
The historic approach for cash flow lending to any business at this stage in the life cycle has been to look for a history of positive EBITDA and strong cash generation. However, rapidly expanding technology companies will reach profitability at the operating line and choose to reinvest this cash back into the business leaving them deliberately running off low EBITDA in order to feed top-line growth.
Typically, they will invest in research and development and sales and marketing, in order to quickly grow their customer base and take market share from competitors. However, this has left conventional European lenders, unable to get comfortable with the risks involved, out of the market, and leaving fast-growing technology companies with a debt funding gap at a critical point in their cycle.
Aaron Clark, Relationship Director
07775 555 413