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07 Oct 2016

BY TTG Staff

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Raising finance for business growth

Andrew Hoad, partner at asb law, explains some of the considerations when seeking funds for business growth

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At some point during a company’s growth journey, funding will be needed, not only for business as usual outlays but also to support strategic initiatives to realise ambitions for long-term sustainability. Most companies’ overdraft facilities are unlikely to support acquisitions and investments on their own and therefore external investment will need to be sourced.

 

The travel sector in particular also needs to adapt quickly to fast-changing market conditions. These often throw curve balls that can be difficult to manage without the support of accessible funding. The industry has a thirst for innovation, which brings its own challenges as traditional funders may be more sceptical about the security of its funding.

 

A mix of funding options for financing needs should be considered to ensure your company can achieve its growth goals. The more traditional corporate lending options such as bank debt will be familiar to most but they may not always be the most effective, financially advantageous or even an available source of finance to an ambitious, growing organisation.


Growth can be supported by some of the following types of finance:

 

Bank debt

Banks are often the main source of external funding where security will usually need to be offered. A robust business plan will be needed and interest rates are likely to be a more expensive financing option for smaller and younger companies. In the post-Brexit decision era, banks’ credit teams are becoming more stringent but they will still back good businesses.

 

Private equity and venture capital

An injection of growth capital from a private equity company will create the dual benefit of finance funding and business partnership expertise with a vested interest in the company’s success. It has traditionally been used to finance a management buyout but more providers are now prepared to offer capital for growth. Many travel companies are not asset-backed businesses but have high potential and therefore remain an attractive mid-term investment. With direct involvement in the business, a private equity firm will have greater control but most will allow the management team to get on with running the business day-to-day.

 

High net worth investors

These individuals may be able to help at early stages of business growth by injecting a substantial sum in return for an equity stake and a place at the board table. It is more likely that these individuals will have experience of the sector and possibly involvement in other sector-related companies that can then work together.

 

Crowdfunding

For the right company with a clear vision that can be easily communicated, crowdfunding is becoming increasingly viable. It involves getting many small investments from a large number of people. These investors will typically have no say in the running of the business.­

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