Q. I’ve been looking at ways of financing the growth of my business, and have come across the term ‘integrated finance’. However, as it seems to be a relatively new idea, I can’t find many examples of businesses using it. What are the benefits?
A. JEFF MACKLIN, MANAGING DIRECTOR, FDUK
Integrated finance is not new. It has been around for a number of years, however it has recently been repackaged and marketed as a new product. Put simply, integrated finance combines debt and equity. Informally some organisations have been offering such deals for years.
I can definitely see the attraction of using one provider for an equity and debt package. It should mean that a deal can be completed more quickly, enabling management to concentrate on the business and avoid chasing a number of banks. More importantly however, by holding an equity stake the bank will have more of an interest in the business succeeding.
From the provider’s point of view, a business might look attractive in terms of debt but not in terms of an equity investment. Put together though, it might be a good prospect for sustained return. If you take on equity in a company, often there will be little or no cash return until there’s an exit. If you offer the debt as well, this can supply regular cash return in the form of interest.
It is worth noting though that you might be able to get better rates by sourcing the debt and equity separately. If I was advising a company, I would certainly look at more than one option and consider both separate and integrated finance. Without competition, you cannot be sure that you are obtaining the best available terms!
Jeff Macklin is managing director of FDUK, which provides experienced part-time finance directors to fast-growing businesses across the UK.