Expert commentary on Retail
Public equity – permanent capital
Tim Ward, CEO, the Quoted Companies Alliance
As companies grow, they need capital and are faced with the task of weighing up various financing options. The fact of the matter is that most turn to some form of debt financing. The financial crisis demonstrated that this is not a sustainable option. During the crisis, banks called in their loans and, despite economic recovery, bank debt is still relatively hard to come by.
Going public is often discounted by growing companies as being ‘too difficult’. However, raising equity finance has many benefits that make it an ideal source of capital.
Equity is permanent capital – you do not have to pay it back. A quoted company has access to capital on a continual basis. Your company is able to go back to your long-term equity investors for subsequent fundraising rounds, as well as being able to complement this with other sources of finance. This provides the opportunity to develop a diverse shareholder base.
A listing also provides an objective and real-time valuation of a business. You can use this to attract and incentivise employees through share plans. Your employees and other investors can buy and sell your shares in the secondary market, participating in the company’s growth and success.
Investors have different time horizons, so the ability to sell provides a good opportunity for new investors with different objectives to come in.
Being a public company increases your profile and visibility, which, in turn, helps to attract customers and reinforces your relationship with suppliers.
“Being a public company increases your profile and visibility, which, in turn, helps to attract customers”
A listing is essentially a kitemark that attests to the quality of your company. Information about your company is readily and regularly available, providing a transparent and confident relationship with stakeholders.
A listing can also facilitate acquisitions of other companies that fit your company’s growth plans. You can use your shares to pay for the deal as an alternative to cash. It also provides a potential exit route for the original owners at the right time.
250 – The number of members signed up the The Quoted Companies Alliance
However, there are challenges. Being a public company comes with significant costs. Your company’s share price and value will be affected by factors beyond your control, as the market reacts to economic conditions or sentiment. Share prices are not perfectly correlated with a company’s performance; there is often a hiatus between an announcement of good figures and a consequent rerating of the company’s value.
With a higher profile comes greater public scrutiny. Investors expect consistent results. The more you actively engage with investors and manage their expectations, the more there will be opportunities for growth. This should be seen as a legitimate cost of capital, not a mere side issue.
Public equity is not an option to be taken lightly but, for the right company at the right stage of development, it can accelerate growth and create sustainable long-term value for all shareholders.
Banks help SMEs grow
Anthony Browne, Chief Executive of the BBA
Small and Medium-Sized Enterprises (SMEs) are the beating heart of the economy. They invest in local communities and create jobs across the country.
The success of these firms is integral to our future. Figures from the Department for Business, Innovation and Skills show that SMEs accounted for 60% of all private sector employment and 47% of all private sector turnover in 2015.
In order to thrive, it’s crucial that these businesses have access to appropriate forms of finance. Banks are committed to supporting SMEs so that they can continue to drive the economic recovery.
In 2016, interest rates remain at historic lows and lending to SMEs continues to rise. The economic outlook is positive but the most recent SME Finance Monitor shows that there is still a gap between perception and reality when it comes to bank-lending application success rates.
In the past 18 months, eight out of ten businesses that applied for finance got a green light. This is far higher than the proportion that felt confident their application or renewal would be successful.
“It is vital that businesses are able to access the right type of finance at the right time”
Positively, the number of companies that consider access to finance as a major obstacle to running their business has fallen to just 6% – below issues relating to the economic climate (13%), legislation and regulation (13%), and cash flow/late payment (9%).
The Bank of England’s figures show that £14.1bn of new SME borrowing was approved from July to September 2015. This represented a 7% increase on the same quarter in 2014, in line with an upward trend in gross lending that started in early 2013.
In this light, the extension to the Funding for Lending scheme announced by the Chancellor in November 2015 was welcome. Lenders are using this scheme to lower borrowing costs for businesses and offering a wide range of competitive deals.
£14.1bn new SME borrowing was approved from July to September 2015
Banks are also offering businesses a range of support services, including the appeals process and free mentoring to help entrepreneurs grow their businesses.
Britain’s first gateway for businesses looking for mentoring services, www.mentorsme.co.uk, has to date mentored more than 250,000 businesses, provided access to more than 27,000 mentors and has 1.4 million users. Meanwhile, the Better Business Finance initiative – run by major high-street banks – also provides information and support.
It is vital that businesses are able to access the right type of finance at the right time. Bank finance, however, is not always the most appropriate option for every business. In line with new legislation, designated banks will offer any SME that makes an unsuccessful application for finance the opportunity to have their details passed to alternative lending providers via government-designated online platforms. This is intended to help match other banks, alternative finance providers and challenger banks with SMEs seeking finance, helping to facilitate more lending to those that are looking to start and grow.
These regulations have the potential to boost competition for SME finance, not only in terms of the amount of finance available but also the cost and quality of services offered.
Banks are ready to help SMEs realise their full potential and there has never been a better time to apply for finance.