In many cases, your existing lender should be best placed to provide you with support and the most cost-effective solutions. But having a plan B can mitigate risk and enhance the outcome of your ongoing discussions with your incumbent lender.
In this article, we’ll explain the three key types of alternative lender and when to approach each one.
But let’s start by looking at why you should consider alternative lenders at all.
Why you might consider alternative lenders
There are three main reasons why you might consider approaching an alternative lender at this time:
- Obtain top-up additional debt to sit behind your existing lender’s provision
- Refinance your whole debt facility
- Gain an equity injection, either from existing shareholders or opportunistic equity investors
The main advantages of alternative funding are:
- The funder universe is diverse, meaning some may be able to take a view and get comfortable where others can’t.
- It can help you introduce competitive tension to your negotiation with your existing lender.
- It could provide a solution that is more fit-for-purpose, rather than simply being a quick fix.
Three main types of alternative lenders
We’ve been in active discussion with lenders of all types to understand who is open for business. Here’s our summary of the main alternative lenders and their appetite for lending to new customers.
Other banks: likely to have their hands full
The major banks are currently in a triage process. First priority for the banks will be to service existing customers with immediate cash requirements, followed by those with some headroom but who are looking to engage on the basis of contingency planning.
The major banks will struggle to allocate resource to assess new-to-bank opportunities. In certain circumstances, there may even be a lack of appetite for banks to consider existing customers who are ‘too healthy’ to deal with at present.
Debt funds: a diverse response from a diverse group
More than 100 debt funds operate in the UK, and their reaction has been far from uniform. But they can be broadly categorised as follows.
- those declaring themselves all but closed for new business as they focus on their existing portfolio.
- those that are open for new business on a more selective basis – particularly targeting businesses either largely unaffected or positively impacted by the shock.
- those that see this as an opportunity to deploy more capital – where incumbent lenders are unable to get comfortable, they may be able to ‘take a view’.
There remains appetite to deploy capital, but knowing which funds to approach is more important than ever. Speak to us for advice.
Asset based lenders: reacting to a less healthy debtor book
Invoice discounting and other receivables-led facility providers may struggle to deploy replacement capital where the debtor book is facing:
- diminishing value due to cash receipts not being replenished by new sales;
- an increase in debtors days, facility reserves, or a reduction in concentration limits; or
- the reduction or removal of trade credit insurance limits.
In this situation, where you have an existing invoice discounting or receivables-led facility, you may need to consider an increase in recourse period and concentration levels, along with adjustments to reserves to preserve cash.
In contrast, some asset-based lenders will take a more holistic view on the overall business, arriving at a borrowing base calculated against the asset collateral and quality of earnings of the business. Many of these providers are still open for business and could offer a credible alternative if you have a strong underlying asset base.
How we can help
Across our debt advisory, corporate finance and restructuring advisory teams, we’ve built considerable expertise in assisting clients to approach the debt markets. We are here to help you in all aspects of your engagement with lenders, including:
- lender negotiation and tactical discussions
- assisting with your strategic review and maximising use of available self-help measures
- financial analysis and presentation of the credit case
- planning, approaching lenders, and lender selection.
For expert advice that’s specific to your needs, please contact