Are debt funds a relevant funding source for my company?

Capital Advisory

From Ernest Partners

When it comes to funding, companies almost instinctively turn to banks. They often have an established relationship with their banks and it is rather convenient – but not as easy as they imagine – to get bank financing. But what banks propose is not always adapted to a company’s needs or requirements. That is why it is time for these companies to also start looking at debt funds as a serious option for funding. Debt funds are often believed to only finance large enterprises, but this is no longer the case. Nowadays, debt funds are an interesting complement to bank financing even for medium sized companies, as some of the actors finance ticket sizes starting from five million EUR.

Why debt funds?

Financing through debt funds has a few key advantages over traditional bank lending. Typically, debt funds allow for more freedom, since often no commitment of use is required and companies are free to spend the received funds any way they see fit. Also, the term of a loan from a debt fund is usually longer than a bank loan. Another advantage of debt funds is that the loans they provide are generally bullet loans, giving the loanee more flexibility during the term of the loan. Moreover, debt funds often do not require companies to commit to any guarantees associated with the loan. The due diligence process performed by debt funds before granting any financing to a company is more thorough compared to banks, but because these funds are highly specialized and are run very efficiently the process to obtain a loan is ultimately faster. The increased speed and flexibility in terms of fund use, term duration and repayment come at a price, quite literally: debt funds charge higher interest rates than banks and it can be tempting to dismiss the use of debt fund loans based on these higher interest rates. The benefits it brings, however, might outweigh its cost.

What are the characteristics of debt funds?

Although many debt funds are generalists that invest in any industry, a growing number of debt funds has a specific focus area. For instance, some debt funds are specialized in financing Fintech companies, while others only finance companies that are ESG compliant. Chances are that there is a debt fund out there that is specialized in your industry. In terms of financial solutions, debt funds offer classic loans but also asset-based solutions such as leasing and inventory finance. Another characteristic of debt funds is that they are typically international players that operate across borders and understand the funding need for a global growth strategy.

How can Ernest Partners assist you? 

At Ernest Partners we believe that the best way to finance your business is to have the correct mix of funding sources in order to have greater flexibility, resilience of funding and a good variety in terms of loan duration. Debt funds can be an efficient source for your funding mix. Ernest Partners, with its deep knowledge of the financing ecosystem, can identify the right fund for your financing need. In addition, we help you build your case with relevant tools and support you in presenting to the debt fund. Does this spark your interest? We are happy to discuss the possibilities with you. Give us a call!

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Author : Philippe Fleurier

Author : Philippe Fleurier

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