Some funding options include traditional banking products (term debt, invoice discounting, finance leasing), alternative debt providers and equity providers (Private Equity, Employment and Investment Incentive Scheme Funds, Angel Investor and High Net Worth Individuals).
If a business qualifies for a bank loan than term debt will be your cheapest source of finance. Banks simply have the cheapest money to loan because of their access to low yielding deposits and Money/ Bond Markets. While much is written about availability of bank debt, Irish Banks are open for business and are lending. Key for a business is to lay out your business plan, your funding requirements and debt repayment capacity in a clear manner. Banks generally lend on a multiple of EBITDA for trading businesses, typically between c. 3.0x – 3.5x EBITDA. That EBITDA will be stress tested by the Banks. Current senior term debt is priced at circa 3.5%+ with arrangement fees. Bank debt comes with conditions, debt covenants and security arrangements which can reduce flexibility so the T&Cs are important. The key banking institutions active in lending to SME’s in Ireland are AIB, BOI & Ulster Bank while there are also other providers which focus on invoice discounting and finance leasing.
Alternative debt providers are more expensive but are often more flexible than traditional Banks and will also offer business owners quicker decisions / access to capital. Debt repayments can be structured to facilitate further capital expenditure requirements and debt availability can be up to 5.0x EBITDA. Alternative Debt pricing varies with coupons of 10%+ with arrangement fees the norm. Some of those active in the non-property Irish SME market include BlueBay, Broadhaven, Proventus and Harbert Management Corporation.
Having dedicated Irish private equity funds focused on the Irish market is really a new and very positive occurrence for Ireland. While we have always seen private equity investment in Irish businesses we haven’t had funds in place that need to deploy capital. Private equity can be a good option for funding growth (organic or acquisitive) while also allowing Owners the opportunity to de-risk their own personal balance sheet, taking some cash off the table. For those considering private equity it is important to view it more as a partnership rather than just a cash investment. The added benefit is access to the private equity contacts, network, experience and portfolio companies that can really help your business grow. While private equity are not managers they will want a seat on the Board so it is important to pick the partner which is a fit for you. Some of those active in the Irish market include Cardinal Carlyle, MML, Development Capital, Broadlake, Renatus, CauseWay Capital, LionCourt, FL Partners and Kish Capital.
While financing options are available, if you are considering a funding process it is important for Businesses to be prepared. The more prepared you are the better chance of securing the right deal for your business.
This article first appeared in the Sunday Business Post 7th February 2016. For more information please contact John Bowe.