Several situations can lead a company to consider increase its available capital with external sources: large investment programme, acquisition, business restructuring  

• Formulating the story right: when approach fund providers the reason for the fund raising should be clearly presented and quantified as well as the demonstration of the ability to repay at maturity
• Diversifying the sources: the fundraising process should consider different options. If one of the envisaged parties pulls back during the process, plan B should already be in place
• Chossing the adequate instrument: depending on the company’s profile, the right instruments should be identified ranging from equity, public funds, bonds, short term or long term bank debt, working capital financing, asset backed financing, platform financing or private debt.

• Reducing unpaid receivables (by invoicing more often and with shorter payment terms)
• Reducing inventories
• Funding the unpaid receivables through receivable finance / factoring
• Reducing short-term debt by securing mid- and long-term credit lines

Our team of experts helps your company financing your Working Capital. In theory, calculated as assets minus liabilities. In practice, it comes down to capital retained in unpaid receivables and inventory minus all short-term debts linked to suppliers, tax office and banks.

• Factoring is often limited at 80 to 90% of the invoice value including VAT
• Factoring is not expensive. Having unpaid invoices outstanding is expensive
• Factoring comes in many forms and each factoring company has a different approach

We advise your company about customized financing solutions, such as Factoring to finance your unpaid receivables by pledging or selling them to a financial party. Depending on the quality of your clients, maturity of the unpaid receivables, and the legal relationship you have with your clients, setting up a factoring will be more or less complex

When building your business plan, you should focus on:

• Revenue streams: ability to capture value from your customer
• Cost items: identify fixed, variable, recurring, non-recurring elements impacting business profitability
• Investments: amounts needed in fixed assets to sustain the strategy.  This component will usually require large capital needs
• Working capital : amounts needed in short term assets such as commercial receivables and inventories, partially financed by suppliers credit.  Usually getting less attention, working capital can also be a large cash consumer for the business
• Cash flow generation: cash generated  by operations after investments and working capital finance will determine the type of funding and the ability of the company to repay its debt or distribute dividend
• Funding requirement: identify the finding necessary to realise the company’s objectives and materialise the strategy

Our team can help you building your business plan and challenge the hypotheses you are currently using to avoid typical pitfalls and biases

• Business story: the ability to correctly explain the ambition and unique selling proposition of a business is key to attract adequate partners (banks, suppliers, customers…)
• Equity story: when raising capital, management should clearly explain its ambitions, the needs necessary for their realisation and the value creation a company can realise for potential investors. The focus should be aligned with the investor time horizon
• Credit story: when approaching banks, debt funds, or other fund providers, the company should identify and explain its business strengths, its ability to generate cash flows which will ultimately be necessary to repay debt

At Ernest Partners, we help you formulating the right story to approach your various stakeholders and engage with them in funding your business

• Easy access to liquidity for SME’s and Midcorps
• Cost price to sell invoices under a SCF contract can be relatively attractive for companies having difficulties funding themselves in a classic way
• One of the key elements to consider before entering into a SCF proposal, is if you already provided a general pledge on receivables to another party
• Setting up a SCF program for your Supply Chain often comes with a minimum volume and can be a complex process

The Initial goal in applying Supply Chain Finance strategies is to create a financially stable supply chain. In practise SCF is mainly used to extend payment terms at favourable conditions for both the buyer and the supplier. To set up SCF for your suppliers or joining a SCF program of your client specialized advice is recommended. Ernest Partners can assist you in this process.

Whilst an issue with profitability is like a cancer for a company, a lack of liquidity is like a heart attack. It strikes suddenly and is fatal for the business

• Liquidity planning: the treasury team should at any time have a view on the cash in- and out-flows for the coming months
• Stress case: to prevent liquidity issues, management should assess the impact of a large fluctuation in key parameters such as volumes, sales prices, raw material prices…
• Back-up solutions: keeping either cash or committed financing lines such as a revolving credit facility or straight loans allows the company to absorb unforeseen events or to seize opportunities

Our team has an extensive experience in cash flow management, crisis management and can accompany your team in rapidly finding the right partners to overcome a liquidity shortage

With Capital Strengthening a company determines the equity and debt funding it wants, in order to finance its operations whilst managing several constraints such as cost of funding, flexibility, maturity…

• Alignment assets vs liabilities: as a basic rule, long lasting assets should be financed with long term funding (equity, long term debt instruments). Ideally, long term funding will even be slightly larger than fixed assets but not too much as this type of capital is usually more expensive
• Capital structure: the type of instruments used to finance a business should also match the company’s cash flow generation profile. At an early stage, companies with limited cash flow generation will require more equity (with a longer commitment) whilst mature companies with steady cash flow and strong assets can raise debt from debt funds
• Funding diversification: besides traditional bank credits, other sources should be used: public capital, debt capital market instruments such as private placement, commercial paper, bonds…
• Fair value of assets: the company should ensure that assets on the balance sheet reflect their current market value. Indeed, next to cash flow generation and contractual engagements, lenders will tend to look at the quality and value of assets as a secondary way of recovering their stake. Leaving depreciated assets on the balance sheet leaves pockets of liquidity untapped and trapped

Debt Restructuring is the process through which a company will adapt its funding structure to better match its current situation

• Long term vs short term: as a basic rule, long lasting assets should be financed with long term funding (equity, long term debt instruments). Ideally, long term funding will even be slightly larger than fixed assets but too much as this type of capital is usually more expensive
• Bullet vs amortizing: depending on the cash flow generation capacity and in order to provide the necessary comfort to debt providers, amortization of credit will be necessary. This will however reduce the average maturity of the funds provided
• Secured vs unsecured: when cash flows are more uncertain, lenders will require a secondary way to recover its money. It can take the form of securities on assets, shares, businesses
• Going through tough times: when a company faces headwinds, lenders can decide to modify terms in order to keep the business afloat and recover their credit at a later stage. Such process requires the company to prove its ability to survive the difficult period

The etymology of the word “credit” goes back to ancient Rome. The verb credere meant trust, believe. Likewise, in a relationship between lender and borrower, even if the company has strong assets, contracts and cash flows, a transaction will be more difficult to realise without trust. Several qualitative elements are key to building such trust:

• Quality of management
• Proven track record of successfully implementing strategies
• History of having overcome difficult times
• Market reputation

Our team can help you addressing the right partners to fund your company in its next adventure

Real estate and equipment lease

Depending on the polyvalence and quality of the asset, a financing till 90% is possible with a leasing solution, usually with a longer tenor than a loan.

Refinancing company real estate with a lease is an excellent piece of the puzzle in the larger part of your financing needs and project:

eg. to fund acquisitions, to extract the real estate or equipment from the company,  to generate cash and pay back loans, to alleviate cash out from investment, for off balance sheet requirements, ….

We can help you set up a leasing tailored to your business at tax, legal and accounting level.

Sustainability Linked Loans (SLLs) are not the same thing as green loans. The term ‘green loan’ refers to a loan that is used to finance a specific green purpose. SLLs, on the other hand, can be applied for any purpose (whether ‘green’ or not), but an in-built pricing mechanism means that the interest rate on the loan is cheaper if the borrower achieves certain defined sustainable or ESG (environmental, social and governance) related targets. The use of SLLs grew rapidly since 2019, with particular popularity in Europe.