Financial investment – securing the growth that your business needs

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A common dilemma that is faced by both emerging and well-established businesses relates to expansion and maximising their growth within and beyond their relevant market. It is widely speculated that 2017 will be characterised by apprehension and uncertainty within the business and financial sector, particularly in the aftermath of the Brexit vote. A common catalyst for growth is third-party investment; in order to secure the investment that business requires, the business must have in place an efficient business plan, and ensure that the sector has the potential to return a profit to investors for their endeavours. This is particularly so if they are seeking an investment from a private investment fund. According to research recently undertaken by Close Brothers almost half of UK small – to medium – sized enterprises have experienced barriers when accessing finance. Only 19% in that study said that their Banks were meeting their needs.

There are a variety of funding opportunities that are available to business that are seeking to develop – such as by introducing a new product, or those that wish to expand their business via an acquisition of another business within their market. The most common form of investment is via a bank loan and, depending on the loan’s size, this often has to be approved by the directors at a general meeting or even the shareholder. The nature of the loan could vary from an overdraft facility to a fixed loan, however it will often be the case that the business has to repay the loan over a specified period of time, generally with a fixed amount of interest. Often in return for the loan, the bank takes out security over the businesses assets to protect itself in the event of insolvency. It is important that the terms of the loan, the practical consequences of the loan and the security and the potential effects of enforcement are fully understood by the Directors of the business prior to execution of the documentation.

Another common type of investment is that made by a private investor, such as an interested individual or a private equity fund. In return for the investment, the third-party/fund generally receives shares within the business, and their profits come in the form of capital gains or dividends. This form of investment is generally entered into by the third-party with a view to long-term profit. When negotiating such an investment, the business needs to ensure that the party they are dealing with shares a common business objective with them, and that they fully understand the terms of the investment. The investment documentation will be undoubtedly weighted in favour of the investor and will therefore need reviewing and negotiating on behalf of the business owners.

Forbes’ corporate team regularly work with businesses who are entering into debt based financial arrangements or equity investments. If you have any queries relating to this article or partnership law more generally, you can call our Corporate and Restructuring team directly on 0800 689 0831. Alternatively you can contact use via our online Contact Form.

Pauline Rigby

About Pauline Rigby

Pauline Rigby is Head of the Corporate and Restructuring team at Forbes Solicitors. Pauline’s blogs cover a wide range of corporate issues, specifically areas including company formation, banking, joint ventures and shareholder matters, contractual matters and equity fundraising or investing.

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