The Role of the Corporate Finance Advisor for SMEs looking for Debt Capital

Many will go to their bank to try and negotiate a business loan. But the ‘SME Problem’ still persists for many small businesses looking for finance. SMEs have found it incredibly tough to obtain the right finance, with large amounts of businesses seeing the withdrawal of promised finance or flat application rejections. Others have faced sharp increases in loan interest rates and facility fees imposed.

Even businesses with good credit histories were not immune to these problems.

The reality is that banks have become far more risk averse.

As a result, some business owners turn to Google and simply search “business loan” to build a shortlist of online promoted finance providers to reach out to. This is ok for smaller loans (sub-£500k) perhaps, but for larger, more complex facilities required (£1m+), many business owners are put-off by the easy qualification criteria that many online loan providers offer.

For a large majority of business owners who can no longer agree fair terms with their bank, they take on recommendations and advice from trusted strategic partners and advisors.

This is where the Corporate Finance Advisor plays an important role in guiding business owners through the process of alternative finance.

From strategic planning to lender negotiations, these professionals provide the expertise and structure required to improve a business's chances of obtaining the right funding solution.
Their involvement can significantly increase the likelihood of success while ensuring the business secures funds on favourable terms.

We look at the advantages of hiring the services of a Corporate Finance Advisor when looking to secure debt funding

1. Expertise

Corporate finance advisors specialise in assisting businesses with borrowing strategies. While a company's existing accountant or lawyer may excel in daily operations, they might not possess the specific experience required for complex transactions like acquisitions or significant expansions.

Engaging a specialist ensures that the business benefits from up-to-date knowledge and best practices in the field.

2. Assessing the Business’s Financial Position

The first step a corporate finance advisor takes is conducting a comprehensive assessment of the company's financial health. This involves analysing financial statements, cash flow forecasts, profitability trends, and asset strength.

By identifying the company's financial strengths and weaknesses, the advisor can determine the appropriate debt structure, and the amount of capital required to meet growth objectives.

During this stage, the advisor also evaluates key financial ratios, such as debt-to-equity and interest coverage ratios, to ensure the business's capacity to service additional debt without undue financial strain. This thorough analysis is vital for developing a realistic and sustainable financing strategy.

3. Developing a Financing Strategy

Once the business's financial position is understood, the corporate finance advisor helps develop a tailored financing strategy. This involves aligning the debt structure with the company's objectives, cash flow capacity, and risk tolerance. They advise on factors such as loan term lengths, fixed versus variable interest rates, and secured versus unsecured lending options.

Advisors will also assess potential sources of funding, including traditional banks, credit unions, alternative lenders, and government-backed loans. By identifying the most suitable funding source, they can help business owners secure the most favourable rates and terms available.

4. Preparing Documentation and Financial Models

Lenders require detailed documentation to evaluate loan applications. A corporate finance advisor ensures that all necessary paperwork is accurate, complete, and compelling.

This may include:
• Business plans with clear growth projections
• Detailed financial forecasts that outline revenue streams, cash flow, and expenditure
• Valuation reports that justify the requested loan amount
• Evidence of collateral, if applicable

Advisors create robust financial models that demonstrate the company's ability to repay the debt, helping lenders understand the viability of the proposed financing.

5. Identifying and Engaging with Lenders

A corporate finance advisor leverages their network of financial institutions to connect business owners with appropriate lenders. With access to numerous lending sources, advisors can identify options that align with the company's needs. They also manage the entire negotiation process, ensuring the business owner receives the best possible terms and rates.

Through their expertise, advisors often anticipate lender concerns and address them proactively, helping reduce the risk of delays or rejection.

6. Negotiating

Even in amicable transactions, such as a Management Buyout (MBO), an external advisor provides essential distance and objectivity between parties. This detachment helps prevent personal relationships from influencing business decisions and ensures that negotiations remain focused on achieving the best outcome for the company.

7. Deal Management

The transaction process can be time-consuming and, towards the end, almost all-consuming. Allowing an experienced advisor to manage the deal enables business owners to continue focusing on daily operations, ensuring that the business remains stable and productive during critical transitions.

8. Managing the Application Process

From submission to closing, a corporate finance advisor streamlines the loan application process. They liaise with lenders, respond to queries, and ensure all conditions are met in a timely fashion. This active involvement minimises delays and ensures the financing process runs smoothly.

9. Providing Post-Funding Support

Even after securing debt capital, a corporate finance advisor continues to add value. They may assist with cash flow management strategies, financial reporting obligations, and advising on refinancing options if market conditions shift.

About SME Capital

SME Capital was founded to support the growing number of SMEs who face difficulty or frustration in accessing capital through traditional methods. We understand the importance of real and trusted relationships in the SME lending market and have dedicated Regional Directors based across the UK.

By combining traditional lending expertise with the latest in data analytics, we are supporting established UK SMEs with their long-term objectives and business ambitions.