Wednesday, October 10, 2012

Alternatives to Banking for Business Finance

Brought to you by our friends at Osborne Clarke

Whilst many companies have relied on bank loans to finance growth in previous years, the majority of businesses are now forced to look elsewhere when considering funding.  As banks continue to reduce their lending, businesses are using other methods of financing in order to expand. Fortunately for businesses, there are a number of alternative methods which can be used to finance company growth and expansion.

Over the past year there have been various high profile deals involving alternative forms of finance. These highlight the options available to companies planning to expand without relying on bank loans. For example, the securitisation of Centre Parcs has enabled the company to manage their existing sites and potentially develop others using the money generated from the deal. Whilst the nature of the business and the stable revenue history made securitisation a viable option for Centre Parks, this may not be the case for other businesses which may need to consider different funding options.

The growing retail bond market can enable companies to generate long term funding, as evidence by the People for Places retail bond issuance earlier this year. By securing funding for long term growth, the company is able to operate strategically and meet future demand with the aim of increasing revenue without relying on the bank.

Companies with existing assets may seek to release capital from these assets to enable them to expand over upcoming years. In order to access funds, Tesco arranged a sale and leaseback transaction involving approximately £450 million of their UK property assets. They have created and sold the assets to a joint venture between Tesco and its pension scheme who will then lease the property back to Tesco. The funds generated from the deal will allow Tesco to carry out their plans for further growth.

With banks continuing to limit their lending, there has been an increase in the availability of alternative forms of lending. Whilst securitisation, the retail bond market and the use of existing assets to release funds all provide viable options for obtaining capital, there are a variety of opportunities available to businesses hoping to implement their plans for expansion. Companies who broker deals whilst the non-bank lending industry continues to grow are likely to find the best deals and generate the best return as a result. Although the reluctance of banks to lend may have initially led to valid concern for many businesses, the increase in alternative forms of lending will allow companies to operate effectively whilst continuing to grow, enabling them to achieve their original and overriding objective. 

Osborne Clarke is an international law firm and has a specialist legal team with a focus on banking law

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