Working in partnership to deliver innovative funding solutions – by Will Mason of Liquidity Club

One of things that can be overlooked by businesses (particularly smaller businesses) when looking to raise funding for growth is the structure of funding and how it impacts the day-to-day running of the company.

According to the recent SME Finance Monitor released by the BVA BDRC (March 2019), the main issue facing SMEs when raising finance has now shifted from the issue of access to finance, to demand for finance amongst SMEs and the extent to which the correct forms of funding are available to those businesses looking to grow and invest.

According to the report, 36% of SMEs were using external finance in 2018 compared to a similar figure of 38% in 2018. So why is structure not a more prominent question for business owners? Has an abundance of different types of funding created choice paralysis? Or maybe there is still too much jargon and the types of products available still confuse people.

We may be slightly biased, but this is why all of us at Liquidity Club feel professional advice and guidance is so important. An expert hand can offer interpretation of the market and various products, a steer to which feels most appropriate, and the right access via a network of contacts that can help turn your business ambitions into a reality in a way that works for your business.

Recently I worked with Parisa Lian at Reward Finance Group to assist flight operator Flylolo who were experiencing growth but, due to the complex regulatory requirements of the travel industry, were experiencing cash flow challenges.

Flylolo specialise in purchasing seats on ‘peak season’ flights and selling them to individuals and families at reduced rates. This means buying aircraft seats in bulk as soon as they are released, in order to obtain the best prices. The cash flow challenge arises because, as Flylolo provide ATOL protection on all bookings, money from customers sales must be deposited in a protected trust account and cannot be accessed until the flights have operated – often months later.

Without the right guidance Flylolo could have easily ended up with a term loan. While this ticks the box of putting extra cash in to cover the shortfall, it requires a forward view of what is needed for the full season ahead and will incur costs on the full predicted amount from day one.

By understanding the requirements in more detail, Liquidity Club advised and arranged a revolving credit facility provided by Reward Finance Group to meet the cash flow needs. Unlike a term loan, this allows Flylolo to draw cash only as needed, up to an agreed limit, defined by the business credit and risk. This is not a unique product in the market but is a fresh approach and a great strength of Reward’s offering.

By working together, we were able to provide a funding solution that supported Flylolo’s business model and enabled them to drive forward the business with confidence.

For businesses, here are some tips on what to consider when approaching an advisor and/funder for funding to support your growth plans:

  • Are the finance facilities you are using truly suited to the requirement? Typically working capital is better funded by revolving facilities where you can continuously draw down and repay over the term agreed.
  • Are your lenders people that you can work with? Would they steer you down a better route even though it meant they earn less?
  • Do they understand your business or provide experience that adds value to your operations? Do they have experience in your market, understand its dynamics and the issues?
  • Will they provide the flexibility and support that you need to move forward?
  • Does your finance package provide the required headroom to support growth?