The COVID-19 pandemic has drastically impacted global markets in ways never before witnessed in peacetime. Notwithstanding governmental initiatives and the proactivity of central banks, the unprecedented decline in both supply and demand means that the ultimate and enduring implications of the crisis will be unknown for a good while to come.

What is clear is that there remain opportunities for those with the resources—and the penchant for a healthy dose of risk—to conduct M&As of targets experiencing financial distress. And when it comes to the unique and extensive challenges that will present themselves as you go about funding your acquisition of a business undergoing administration, Lending Made Simple can help you weigh up the various financing options available to you.

Funding your distressed acquisition

Your first port of call in approaching distressed M&A is likely the bank. However, the COVID-19 pandemic means banks are more cautious than ever when it comes to financing companies and individuals looking to acquire distressed businesses.

But if you’re finding that banks are unwilling to engage with you, don’t worry. There are numerous alternative financing options that may be well within your reach.

Below are several points of important consideration, whether you’re seeking funding from a traditional bank or an alternative source.

Asset-based lending

If you’re looking to purchase a distressed business, you could consider securing a loan against the assets of the target. You could later sell these to pay back the bank if necessary.

Leverage your assets as security

You may be able to obtain a loan for the purpose of acquiring a distressed business if you secure it against some of your existing assets. This strategy isn’t risk-free, of course—you could stand to lose significant properties that are key to your business’s functioning.

However, engaging in an approach that involves sharing some of that risk is precisely what could help bring a funder around to your case.

Engage with a funder to which the target owes money

If a bank or other lender is currently owed a sizeable sum by the business you are looking to acquire, there is a good chance they will be open to helping finance your project. They will also be more likely to help you than would a lender with which neither your business nor the target has history.

Due diligence

Acquiring a business that is undergoing administration involves quick turnarounds and intense time pressure.

But don’t neglect due diligence. Lenders will still want to see evidence of your forecasted case for success.

Putting forward evidence of your thorough due diligence could ultimately mean a lender being more open to the idea of providing you with a loan to help finance your project.

Alternative sources of lending

If you’re still experiencing little joy in your attempts to get a bank on board with your acquisition, the game’s far from over. There are several options you may consider and a growing number of alternative sources of funding.

Remember, no matter which route you take, financing your acquisition of a distressed business is only half the battle. A genuinely successful acquisition also entails a proper turnaround strategy to be implemented upon take over.

You must factor in the working capital required to keep the business going and return it to a state of profitability—and perhaps even prosperity.

Peer-to-peer lending

Peer-to-peer lending is a financial matchmaking system that brings together those who have cash to lend and those looking to make a favourable return through an acquisition. By cutting out the banking middleman, investors putting up cash may achieve higher rates than they would from a savings account. What’s more, borrowers will often be required to pay less than they would with a conventional loan.

Crowdfunding

You may wish to consider financing your venture by bringing on board a large number of investors, each of whom will submit a small sum to your case. Platforms and organisations exist to make this possible on a large enough scale to fund a distressed acquisition.

Invoice financing

Unpaid invoices mean cash that is tied up and sitting in a metaphorical pile of paperwork. Furthermore, struggling companies are, by definition, experiencing cash flow problems, which are oftentimes at least partly caused by late invoices.

This might be something to consider as part of your turnaround strategy. An invoice financier can buy these unpaid invoices from you (and even chase up the debts on your behalf), taking a percentage of the total value by way of their fee.

Private investment

Private equity involves investment funds (generally organised as limited partnerships) that are leveraged to buy and then restructure businesses that are not currently publicly trading. Investment firms may take a percentage of equity in your company in exchange for their cash injection, but the sheer extent of the change they may effect in the long term will often outweigh this financial sacrifice as you strive for a successful turnaround.

Specialist lenders

Many firms specialise in financing businesses but are neither banks nor providers of private equity. They offer a range of solutions entailing both secured and unsecured lending, contingent on your own business’s particular needs and circumstances. These firms are well worth approaching if you require a cash injection in order that you may then turn around an acquired distressed business. And one such firm is Lending Made Simple.

Who are Lending Made Simple?

Lending Made Simple are experts in helping companies plan their financing of acquisitions. They consider in immense detail every facet of your approach to the funding of your proposed venture. Who is buying the business? What are their assets? What assets are possessed by the target, and could they be leveraged as a constituent of the purchase price to fund the acquisition?

Lending Made Simple can help you to access numerous financial products:

• Invoice finance
• Cash flow finance
• Asset finance
• Debt finance
• Commercial mortgages
• Bridging loans

Lending Made Simple take a wholly refreshing and holistic view on finding the optimal solutions for their clients, even if said solutions entail a bespoke combination of financial products, both secured and unsecured.

With the funding climate now more volatile and fundamentally unpredictable than ever before, it is imperative that any company looking to acquire a distressed business is entirely aware of and conversant in every financing option available to them.

Contact Lending Made Simple today via our online enquiry form to begin your acquisition venture in the strongest form possible.