How to find Turnaround Finance – a 4 step guide

pennies_and_poundsSince the global financial crisis of 2008, any form of finance has been more difficult to come by, with the banks seeking to rebuild both their reputations and share prices; whilst at the same time responding to regulators’ desire for them to reduce their balance sheets.

This dearth of business finance has been particularly badly felt by the SME, particularly where it is anything less than a near perfect situation with growing sales and profits, and significant personal guarantees.

The SME that has any type of issue, or is even considering a Turnaround, finds it nigh on impossible to find new or replacement business finance.

That is not to say that Turnaround Finance is not available, it is just that it isn’t available from traditional sources, i.e. the banks.

They say that the only way to learn how to Turnaround a business, is to do it for yourself. Whilst there are a number of big picture issues that you need to cover off, every situation is different, the route forward is contingent on the particular set of circumstances you find yourself in.  There is no prescription for success!

Nobody prepares you for a Company Turnaround and it’s very difficult to go about sourcing Turnaround Finance unless you have previous experience of both turning round your own business and/or having significant knowledge of this niche finance market.

1.      Find a trusted advisor

Turnaround finance is a specialist area with many different types and sources, each with their own preferred sectors and idiosyncrasies.  As well as you know your own business and respective market, it is very difficult to gain a deep understanding of the Turnaround Finance market in what is likely to be a pressurised situation.

2.     Turnaround debt finance

There are a number of asset based lenders and invoice finance providers with specialist divisions that will refinance your existing debt from the current provider to facilitate your turnaround strategy.  They will obviously need to understand your turnaround finance needs and how this will enable your turnaround strategy.

To be successful with these types of application you will need to approach the right lenders and then convince them of your ability to make a success of the strategy.  It is unlikely that you will need to give away any equity as this type of funding is paid for via a transactional service charge and an interest charged on funds advanced.

There are also an increasing number of turnaround finance specialist debt providers.  These businesses will introduce potentially significant levels of debt into company turnaround situations.  They will invariably have a good understanding of your sector and then need to get comfortable with your particular business proposition post turnaround.  These types of funders will want to take a significant stake in your business in exchange for this debt.

3.     Turnaround equity finance

There are a small number of specialist Turnaround equity providers. This is a mix of specialist companies who have a portfolio of turnaround opportunities and high net worth individuals who are likely to have carried out their own turnaround and sold their business for a significant sum.  Both these types of investors will want a controlling interest in your business. It is often possible to negotiate a ratchet structure that will increase your initial shareholding post- turnaround dependent upon the success of the turnaround strategy.

4.     Turnaround buyout finance

Very often the relationship with an existing funder will have broken down in the lead up to the need for a company Turnaround, and they are unlikely to want to support the proposed strategy. Again, there are a small number of specialist funders who will buy out the existing funder to enable the turnaround strategy to take place. They will seek to refinance the debt back into the mainstream funding market once the turnaround has been implemented.

Summary

As you can see there are a range of potential turnaround finance providers in the market place.  Given the complexity of the available offerings and the inevitable time pressures involved I would strongly recommend that you take advice from a specialist before choosing your finance partner.

As always if you would like to comment on or discuss anything in this article I can be contacted at john.thompson@transcapital.co.uk or on 0845 689 8750.

 

Image by: Mukumbura