An improving economic outlook is allowing the SME community to look forward with confidence rather than unease, and with this confidence is a growing appetite for investing for growth and considering acquisitions. However, there is every risk that an intensifying interest in M&A as a means of accelerating growth and accessing new products and markets will quickly outreach the banks’ appetites to fund it.
There has recently been a pronounced improvement in the mainstream banks’ willingness to lend, albeit cautiously, conservatively and expensively. As a result, during 2012 the traditional lenders started to extend meaningful credit to larger unquoted companies, those generating EBITDA of £10m plus and, since mid-2013, the banks have extended their lending to a larger audience of £5m plus EBITDA businesses. Our Debt Advisory team has been securing competitive term sheets from multiple lenders – moments to savour after nearly four years of eking out interest from one or two grudging institutions!
This trickle down of credit appears to be gaining momentum but unfortunately it is unlikely that £2m plus EBITDA businesses will be spoilt for choice when looking for debt over the next six to 12 months, just as the M&A market starts to take off. Entrepreneurs – and their advisers – will continue to need to be creative about where they source funding from. Fortunately viable alternative providers exist, whether it be new-style credit funds, asset-based lenders or private equity. There is every likelihood that funding for well thought-out and constructed deals can be obtained in the short-term, with the potential to refinance with more plain vanilla debt in 12 to 18 months time, when the High Street banks finally catch up!
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