Funding for distressed businesses

With borrowing costs now at their highest since before the 2008 financial crisis, and with inflation fuelling a cost of living crisis and impacting on consumer demand, these are challenging times for all businesses needing external funding.

It is particularly difficult if the business is in financial distress: struggling perhaps with creditor overhang resulting from losses in the pandemic, or needing to restructure its activities to adjust for the current, harsher, economic environment.

If the business is losing money and cannot be turned around then there is no possibility of getting funding.  But we often see business which have returned to profitability but struggle to raise money due to recent losses and their effect on its balance sheet.

In such circumstances the key first step is to have management information showing:

• an accurate picture of the current financial position, and
• the profitability of the business activity or activities

How can we help?

We can help directors to formulate a strategy for the future by doing an options review. The ingredients of the review are:

• the current financial position and the level of creditor pressure
• a review of forecasts (we can assist in preparing if necessary) and the application of sensitivities
• consideration of the options available to the directors. Depending on the circumstances and level of distress these can include:
  • restructuring steps and dealing with any resulting costs
  • addressing borrowing facilities with existing or new lenders
  • negotiation with creditors, including HMRC to fit payments to available cash
  • more formal creditor arrangements if the degree of stress is high

We also cover directors duties, the personal risks of managing distressed companies and how those risks can be minimised.

When to seek help

One thing is clear from our experience over the years: the sooner advice is sought the wider the range of options available to save distressed companies. Don’t leave it until the pressures are unmanageable!

For an exploratory discussion contact one of our specialists.