The beauty of simplicity

12th Mar 2020 | Ben Pauley


Keep Things Simple Stupid (KISS for short), I am sure you all remember that from school. Whether you are an Investor, Business Owner or Developer the same thing applies to your finance.

Clients can find themselves tied up in knots trying to come up with innovative or clever solutions for their finance but often the best path forward is staring them straight in the face. I am not opposed, and often find myself, coming up with novel solutions – however these are almost always borne from addressing the basics. This article will point out 3 things to keep in the front of mind when looking at your finance regardless of its purpose.

What is your exit?

How will the debt be repaid? This is the first point of call for every lender in the market. Regardless of their risk appetite every lenders primary concern is being repaid.

If going into a transaction you can paint a clear picture and pathway to the exit for the lender then you have taken the biggest step forward towards getting the finance you require. Remember this needs to be clear, defined and have an element of certainty.

For a developer it could be the sale of properties, an investor through rental income and a business owner trading income. It may however also be a refinance, sale of IP, sale of another property or insurance payout (i.e. an underwrite of sales etc.).

What is the purpose?

The next point to address is the purpose of the funding. What do you need the money for?

Again, each lender will want this clear and defined, they will want to know what you are going to use the money for. Often this is linked to the exit but not always, sometimes it may be to address a tax bill, pay a dividend, purchase an asset or many other things.

Lenders will also want to ensure the structure of the funding is fit for the purpose. If you are purchasing a fixed asset the lender will offer you term debt as opposed to revolving facilities. Working capital however will provide greater flexibility as is expected to fluctuate.

The more coherent reason to borrow the money the easier it will be source finance.

How is the debt secured?

Security is an important, albeit not always crucial, part of any application for finance. This points towards the lenders ability to recoup their exposure if you default on your debts. The primary concern is your risk of default (see ‘exit’) however following that they want to know what they stand to lose if you do.

If your capacity to repay the debt is very strong the lender may be comfortable with very little security. They will want to secure the means to their repayment (i.e. a GSA or Guarantee) but may be comfortable without landed (property) security.

Vice versa, if the clarity of the exit or purpose isn’t defined a lender may be happy to release cash against the strength of their security.

I encourage all borrowers to keep all 3 points above at the front of mind when they are seeking finance. If you can get a tick in all 3 of those boxes finding finance often becomes a formality.

As always though, the simplest thing to do is contact a professional to help you along in the process.

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