Turnaround finance is a type of funding specifically designed for businesses in distress. This funding can provide the capital necessary to make operational changes, restructure debts, or simply keep the business afloat until it can return to profitability.
While turnaround finance is not always successful, it can offer a lifeline to businesses that would otherwise be forced to close their doors. Businesses can often find themselves in a difficult financial position for a variety of reasons.
Poor management decisions, over-expansion, or simply bad luck can all lead to financial distress. In these situations, it can be difficult to obtain the funding necessary to keep the business afloat. However, there is still hope for businesses in this situation
What is Turnaround Finance
Turnaround finance is a type of financing that is used to fund businesses that are in distress or facing insolvency. It is typically used to fund the restructuring of a company, providing the capital necessary to pay off debts, improve operations, and return the business to profitability.
This type of finance can be provided by equity investors, lenders, or government agencies. The terms of turnaround financing are typically very demanding, and the risks are high. However, for companies that are able to successfully turnaround their business, the rewards can be significant.
Types of Turnaround Finance
There are a number of types of turnaround finance on offer to businesses in a distressed state, we have outlined the most popular ones here:
1. Asset Finance
Asset finance is a type of financing that allows businesses to purchase equipment without having to pay the full amount upfront. Instead, businesses can spread the cost of the equipment over time, making payments as they use it. This type of financing can be especially helpful for businesses that are growing quickly and need to invest in new equipment but may not have the cash flow to do so.
And because asset finance is secured against the equipment itself, it can often be easier to obtain than other types of financing. So if your business is in need of some new equipment, don’t let a lack of cash flow stand in your way. Consider asset finance as a way to get the equipment you need while preserving your working capital.
2. Invoice Finance
Invoice finance is a type of funding that allows businesses to draw on the value of their outstanding invoices. This can be a useful way to access working capital, as it can provide a source of short-term funding that is not tied to traditional forms of borrowing such as loans or overdrafts. Invoice finance can also help businesses to improve their cash flow, as it enables them to receive payment for their invoices more quickly.
There are a number of different types of invoice finance, but the most common is invoice factoring. This involves the business selling its invoices to a financial institution at a discount, with the institution then providing the business with an upfront payment. The business is then responsible for collecting payment from the customer, with the financial institution typically taking a small fee for providing the service.
3. Private Equity Finance
Private equity finance is a type of investment that provides capital to companies that are not listed on public stock exchanges. Private equity firms typically invest in companies that are in the process of going public or have recently gone public. The goal of private equity firms is to generate a return on their investment by selling the company for a profit when it goes public or is acquired by another company.
These types of firms typically invest in companies that are in need of capital, have high growth potential, and are in an industry with favourable market conditions. In order to generate a return on their investment, private equity firms typically sell the company within five to seven years. During this time, the private equity firm will work with management to grow the company and prepare it for sale.
Equity finance is a type of investment that can provide companies with the capital they need to grow and become successful. However, it is important to note that private equity firms typically only invest in companies that have high growth potential and are in favorable industries. If you are thinking about seeking private equity financing for your company, it is important to make sure that you meet these criteria.
4. Private Business Investors
Private business investors typically invest their own money in distressed businesses, and they may also provide other forms of support, such as management advice or access to their networks. In exchange for their investment, private business investors typically receive a minority ownership stake in the business. In some cases, they may also receive a seat on the board of directors. By providing financial and operational support to distressed businesses, private business investors can play an important role in keeping them afloat during difficult times.
In today’s economy, there are many businesses that are struggling to stay afloat. In some cases, these businesses may be distressed, meaning that they are at risk of defaulting on their debts or going into administration. When this happens, private business investors may step in to provide the financial support that these businesses need.
5. Alternative Business Finance
Alternative business finance is a type of financing that is not provided by traditional banks or financial institutions. Instead, it is typically provided by online lenders, venture capitalists, or other private investors. One of the main benefits of alternative business finance is that it can be easier to obtain than traditional bank financing. This is because online lenders and private investors are often more willing to take on risks than banks.
As a result, alternative business finance can provide a much-needed lifeline for businesses that are struggling to obtain financing from traditional sources. In addition, alternative business finance can often be obtained at a lower cost than traditional bank financing. This is because online lenders and private investors typically charge lower interest rates than banks. As a result, alternative business finance can help businesses to save money on their financing costs.
6. Bank Loans
In the United Kingdom, businesses can apply for loans from banks to help finance their operations. These loans can be used for a variety of purposes, including investments, expansion, and working capital.
Banks will typically require businesses to provide collateral for the loan, as well as a detailed business plan. Interest rates on business loans vary depending on the amount of the loan and the terms of repayment. Businesses should carefully consider their options before taking out a bank loan.
7. Revolving Credit Facility
A revolving credit facility is a flexible type of loan or credit arrangement provided by financial institutions to individuals or businesses. It allows borrowers to access funds up to a predetermined credit limit, repay the borrowed amount, and borrow again within the specified limit. Unlike traditional term loans, revolving credit facilities have the advantage of revolving or resetting the credit line once the borrowed amount is repaid, making the funds available for borrowing again.
This flexibility makes revolving credit facilities well-suited for managing short-term working capital needs, cash flow fluctuations, or ongoing expenses. Interest is charged on the outstanding balance, typically on a monthly basis, and the interest rate can be fixed or variable based on factors such as the borrower’s creditworthiness and market rates.
Revolving credit facilities can take the form of credit cards, lines of credit, or overdraft facilities, and they are widely used by businesses and individuals to meet their financial needs.
Benefits of Turnaround Finance
Turnaround finance is a type of short-term funding that can be used to help businesses undergoing turnaround solutions that are in financial difficulty. It can provide the capital necessary to pay off creditors, restructure the business, and give it time to recover. Turnaround finance has a number of advantages over other types of funding, such as loans from banks or investors.
- Speed of implication – it is typically easier to obtain turnaround finance than other types of funding.
- Variety of uses – turnaround finance can be used for a variety of purposes, such as paying off creditors, restructuring the business, or even acquiring new assets.
- Cost of borrowing – it can be obtained at a lower cost than other types of funding. This is because lenders are typically more willing to negotiate on terms when they know that the business is in financial difficulty. As a result, turnaround finance can be an extremely valuable tool for businesses in the UK that are facing financial difficulties
Eligible for Turnaround Finance?
The narrow selection of lenders who offer turnaround financing makes it difficult for entrepreneurs in financial distress and undergoing a business turn-around process.
The process of finding a lender can be very difficult for entrepreneurs who need funding because there are a variety of risk involved with the distress business and their customers. However, it’s important to know that not all financing providers are selective about the businesses who they are willing to work with. This can be especially hard when you require borrowing when restarting your business, it make the situation more challenging than ever before
Eligibility criteria include:
- The business needs to be financially viable.
- Willing to implement recommended changes
- Have a good management team in place
Get a Turnaround Finance Quotation today
Businesses that are undergoing a turnaround procedure can apply for finance via our online enquiry form, one of our team will be happy to get quotations on your behalf for this type of finance.
Lee Jones is a seasoned expert in the field of business finance with over two decades of experience. With a keen understanding of financial markets and a passion for helping businesses thrive, Lee has become a trusted advisor to countless companies across the United Kingdom.