Money doesn't grow on trees!
STEPHANIE CREASEY >
Associate SolicitorFri 26 July 2019
If your business is looking to grow, bring in new employees, invest in new technology or improve their financial position, it is almost certain you will need further finance to do so and this may come from outside the business. At Taylor Rose TTKW we offer a range of services to help both borrowers and lenders where outside finance is involved, as we recognise that it is important to understand the implications for the business. This includes being clear on the terms of a loan or investment, security provided and the pros and cons of selling or issuing additional company shares.
External finance is any kind of funding acquired from sources outside your business. Outside finance may be an alternative option if you do not have adequate internal resources. Examples include bank loans, overdrafts, trade credit, crowdfunding initiatives, investments, grants or the proceeds of selling company shares.
Data provided by SME Finance Monitor showed that in 2018 36% of all SMEs were using outside finance services, increasing to 77% for those with 50-249 employees. The report also highlights that 32% of those SMEs using external finance were using loans, overdrafts or credit cards, showing that alternative options are being actively pursued by SMEs seeking finance, but many SMEs preferred to remain self-reliant due to the uncertainties over Brexit.
Banks and Financial Institutions are usually the first point of call for many businesses, with statistics showing that nearly 2 out of 3 businesses will approach their current bank for finance first. However there has been an marked increase in private lenders and investors providing funding and making investments in SMEs, particularly if there is a potential higher ROI than current interest rates on offer with the high street banks.
Lenders usually require some form of security to guarantee repayments when it comes to loans in case any difficulties occur and investors will look for a return on their investment. As part of our services for lenders, we review security offered by borrowers to ensure that the lender will be in a strong position should they need to call in the loan or enforce their security. In addition, we can produce a wide range of documentation to support the lending process, from a variety of agreements to loan/investment terms. Any sale of shares needs to be carefully looked at to ensure the company does not get taken over by a third party or a competitor.
On behalf of borrowers, our services include reviewing documentation received from the lenders and investors along with advising on security documents (including personal guarantees by directors), drafting investment agreements (including shareholder subscription agreements) and helping with preparing the paperwork for issuing or selling company shares.
If you have any questions relating to this article, please contact Stephanie Creasey.
This blog is based on the Gravitas Spring edition 2018 Article.
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