2022 saw geopolitical upheaval, worsening supply chain interruptions, resurgent inflation, interest rate volatility and huge political turmoil. All these (and other) factors raised the cost of capital, ending the near-zero interest rate environment, and changed the funding landscape, where SMEs were already grappling with a bewildering number of funding options.

As traditional lenders rein in credit appetites further, the burgeoning alternative lending market nevertheless continues to offer cashflow lending, growth funding, leveraged MBO and acquisition financing debt products, but with an even wider range in costs in terms of interest, tenor, principal repayment structures, debt servicing, fees, personal guarantees and equity/warrant requirements, not to mention a range of many other features.

In benign markets, many SMEs believed they could find and negotiate the best deal for their business without the help of an experienced corporate finance advisor. This was always the wrong way to go about things, but in today’s tumultuous climate it is even more perilous. Here are a few key reasons why you should never take a ‘DIY’ approach:

1) It’s not fair on your Financial Director

If it involves money then the FD is nearly always a business owner’s first port of call, especially when it comes to miraculously finding pots of funding to support the next phase of growth. When such calls come for business funding, the FD will do their very best, but they are straying into an area where deep and recent experience pays dividends. Preparing the business to meet the exact requirements of a diverse range of funders (for example we work with over 600), all with differing nuances, is an ominous task for any FD.

2) Funders won’t take you seriously

Especially in challenging market where funders are applying more scrutiny to any proposal, it is imperative that you work closely with a professional advisor to create well-presented materials that make an important statement and create a vital first impression.  It shows funders you are serious about your business and its funding. A quality advisor will guide a company on how to present financial information in a balanced and accurate way, communicating confidence to funders that what is being proposed will withstand all stages of analysis, due diligence and legal scrutiny.

3) Will you spot what’s good and what’s bad?

You can only properly judge the attractiveness of a business financing offer if you have experience of what a specific funder usually does with similar opportunities and what terms a similar opportunity should generate in the market. For this, you need an experienced financial adviser who has an in-depth understanding of the market, the funders, and the various opportunities, something which is absent from DIY processes.

4) Rejection saps confidence

Too many SMEs fail to engage with a corporate finance advisor then take a “No” from their local bank as the end of their funding search, whereas in many cases it should merely be the beginning. That first rejection can take considerable time to come through and dent a SME’s confidence to such an extent that they end of up accepting terms on a loan from the alternative market that are less than favourable, so you must maintain confidence in your business.

5) The process will consume you

You will not have time to answer large numbers of questions from funders based on their individual bespoke requirements. A good financial advisor will be able to save you significant management time by getting ahead of the game and preparing a pack of materials incorporating and accommodating the various requirements of all the funders being approached.

6) Can you really craft the deal?

You need an experienced advisor if you are to maintain competitive tension between lenders and create all-important FOMO (Fear of Missing Out). There is a fine balance between messing people around and maintaining competitive tension - you really want to promptly ascertain the potential for all the funders in the process to improve their terms before narrowing to a shortlist and/or selecting the preferred funder.

A professional adviser is also particularly important in psychological terms when it comes to negotiations which can get tricky and emotional. An adviser is able to think2-3 steps ahead, using their experience to keep cool and act as a ‘circuit breaker’ as needed – all of which stacks the odds massively in the favour of the client.

Alexei Garan is a Partner – Business Financing at Shaw & Co.

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