Why use an advisor when raising finance

Craig Cheetham, Founder & Director, Fellwood Advisory

Introduction

In the ever-changing debt market, securing capital tailored to your business can be a challenge. When considering debt financing, business owners and investors often face a raft of choices not knowing which is the most appropriate. Finance agreements often run for several years and can include heavy early repayment penalties, so ensuring you choose the right option at the outset is important. The expertise of a seasoned debt advisor becomes indispensable. This article explores the benefits of engaging an advisor when raising debt for business expansion and briefly compares the difference between a company navigating the process independently and one with the guidance of an advisor.

1. Expertise and Experience

Debt advisors offer a wealth of specific expertise and experience, navigating the complex landscape of debt instruments and staying up to date of financial terms and which of the many lenders are active. Their insights prove invaluable in crafting the ‘credit story’ tailored to the unique needs of a business, helping you to negotiate the best possible terms and pricing with the right lender.

2. Strategic Financial Planning

Advisors play a crucial role in developing a comprehensive financial strategy beyond mere debt acquisition. Putting themselves in the shoes of the lender, they assess a business's financial health, evaluate growth potential, and devise a customised plan aligning debt utilisation with long-term goals. This ensures that the debt raised acts as a catalyst for sustainable expansion without necessarily having to dilute the shareholder’s equity.

3. Access to a Network of Lenders

Establishing relationships with lenders is critical for a successful debt raise. Advisors often have an extensive network, ranging from traditional banks to direct lenders, asset based lenders and many more. Just because you may know someone that works at a particular bank, doesn’t mean they are the right person to speak to – many individuals roles are quite specific, so knowing you are speaking to the right person is often half the challenge.

4. Risk Mitigation

Navigating the debt landscape carries inherent risks. Advisors help to identify perceived risks lenders will focus on and help to address these head-on before you go to market. This proactive approach allows for the implementation of risk mitigation measures, safeguarding businesses from unforeseen challenges and enhancing overall financial resilience. This is a key element of helping inform what is the most appropriate type of finance package to pursue.

5. Optimised Capital Structure

Advisors assist in determining the optimal mix of debt and equity financing based on a business's risk tolerance, cash flow projections, and growth trajectory. Striking the right balance ensures that businesses maximize the benefits of debt financing without having to dilute equity unless necessary.

6. Time and Resource Efficiency

Raising debt can take months and demands attention to detail. Engaging a debt advisor frees up time and resources, allowing businesses to focus on core operations. Advisors streamline the debt-raising process, handling documentation, negotiations, and administrative tasks efficiently for a smoother financing experience.

7. Negotiation Power

Negotiating favourable terms with lenders requires a nuanced understanding of the debt market and an up to date understanding of where ‘market-terms’ are. Advisors, armed with market insights and negotiation skills, act as well-informed partners in securing the most favourable terms for you. Their ability to navigate negotiations can result in substantial cost savings and improved flexibility allowing you to focus on running the business.

8. Adaptability in Changing Markets

Financial markets are dynamic, and economic conditions can shift rapidly – we have certainly seen this throughout the last few years. Advisors stay attuned to market trends and regulatory changes, enabling businesses to adapt debt strategies in response to evolving conditions. This adaptability is crucial for maintaining financial agility and seizing opportunities in dynamic market environments.

Comparing DIY vs. Advisor Guidance

While some businesses may attempt to navigate the debt-raising process independently, the complexities involved can pose significant challenges. Without the expertise and network that an advisor brings, companies may face hurdles in securing favourable terms, optimising capital structures, and effectively managing risks.

Engaging an advisor not only provides a strategic advantage but also allows businesses to benefit from the advisor's experience, negotiation power, and adaptability in changing markets. The time and resource efficiency achieved through advisor guidance can be particularly crucial for businesses aiming to expedite the debt-raising process without compromising on quality and strategic alignment.

In conclusion, while some businesses may opt for a do-it-yourself approach, the strategic benefits offered by an experienced debt advisor can bring a significantly better outcome, ensuring that the capital raised serves as a catalyst for sustained expansion and long-term success.