What funding options will enable me to retain my equity?
We're a profitable five-year-old retail company turning over £8.3m each year with a significant financing need as we open two new stores in the next six months. We import our stock from South America and own our six existing premises outright. Each opening will cost around £500,000. We don't want to go down the equity finance route: what funding options are open to us?
David Richards of IGF writes:
There are several funding options available. All or some of which would be relevant depending on your marketplace and the current financial structure of the business. Assuming you do not already have full lines of credit and the company has been retaining its profits in the business then the most straightforward option could be to gear up against your current assets, depending on their value, by mortgaging the existing unencumbered business properties. At present the banks appear to have a clear appetite for this type of advance rather than overdraft lending which you should not be using to finance longterm plans. Whether the business owns these assets or the directors personally could affect the amount you could raise and the most tax effective way of structuring the transaction.
The use of a trade finance house to defer the up-front import costs until the goods have been sold in this country should also be considered as this may reduce your initial funding needs for stock purchase. Depending on where the outlets are located, government assistance may also be available by way of grants, assisted loans or contribution towards employment costs.