Banking has changed beyond all recognition over the last decade. Many high streets are now with-out a traditional bank as, according to The Times, some 802 branches closed in 2017 alone – a figure that seems certain to accelerate this year.
Alternative Finance in Focus – Edmonds & Slatter's funding story
However strong your business proposition, realising it through a cashflow-based loan can be nigh-on impossible through traditional channels. Banks these days are reluctant to lend on anything other than bricks and mortar.
Take, for example, the management buy-out of Leicestershire optometrist business Edmonds & Slatter. The two-man management team is highly experienced. Tim Cole is a dispensing optician and Saagar Hirani is an optometrist, both having made their respective careers in this field. Indeed, Saagar has been with the business since qualifying, 17 years ago. In 2006, the pair bought a partnership in E&S and have been two-thirds of the management team, along with Karyn Slatter, since then. Karyn wanted to exit the business, and Tim and Saagar needed to raise finance to buy out her shareholding.
ThinCats head of credit Simon Brook commented: “This sort of business is superb from a credit perspective. People will keep going back to the same optician, generating regular cash flow. E&S, which offers a higher quality of service, does not seem to have been impacted by competition from the likes of Specsavers. It’s a nice deal.”
Banks don’t necessarily take the same view. The asset cover ratio needed for the MBO was 20-times – not something high street lenders are comfortable with. Tim and Saagar initially approached the business’ bank, which first offered them less than they required and subsequently dropped the offer further. Another bank offered them significantly less so that didn’t work either, as the vendor wanted the full amount up front.
Things took a turn for the better when the firm’s accountant contacted East Midlands-based brokers, Reservoir Finance.
Stuart Milton from the firm says: “Most businesses really don’t seem to be aware of ways of raising capital other than through high street lenders.” Reservoir, however, did. The broker contacted ThinCats and another alternative lender.
Stuart explains: “Within a couple of days of contacting ThinCats, we had an agreement in principle for the facility.”
The local ThinCats business development manager, Matthew Lawrence, met the management, saw the premises and labs, spoke to his credit committee and was able to quickly agree the full sum.
“It’s the speed of the process and the understanding of the business that made the borrowers decide to go with ThinCats,” says Stuart: “A large part of it was Matthew’s availability to meet the management.”
After the MBO, the business will be run through a limited company, with Tim Cole and Saagar Hirani as joint owners. Tim comments: “We’re delighted to have found ThinCats through Reservoir Finance. From the first meeting with Matthew Lawrence it seemed clear that they had an appetite to lend, and would structure a bespoke loan to meet our needs, rather than provide something off the shelf. Part way through the process it became clear that it would be easier to pay Karyn in full on day one and after quick consideration they were able to lift their offer by 20% to suit. This enabled us to fully focus on running the business from day one.”
As Simon Brook says, it’s an excellent loan to a strong business. But in this market, you often need 20-20 vision to see that.