The Family Business – Funding the family business
15 March 2019
Family businesses need funding like any other. But when the collateral is the family’s legacy and name above the door, it can be looked at a little bit differently.
In fact, that has sometimes been the case for the funders themselves, viewing family businesses as a more difficult challenge. A common level of stability in family businesses can also preclude the need for debt.
But in the brave new world of alternative funders, asset backed lenders and peer-to-peer platforms, the landscape has changed. Certainly, equity investors who previously preferred to avoid perceived complications that a family shareholder base could offer have overcome their concerns. In fact, recent experience shows that the well-run family business is being actively sought by many types of investment funders looking to get into great businesses with good track records and, frankly, dedicated management teams.
Various of the current equity and debt funders seek to distinguish themselves with a particular focus. Some want to fund businesses that have a positive social impact, looking closely at what the business does for its employees and local community. Others want borrowers with a clear environmental policy. These attitudes, which go beyond the mere business of making money, often strike a chord with the values of families that are in business.
Regarding equity investment, where the traditional aim of the investor was to seek exit within three to five years, it is now acknowledged that many families are not looking to relinquish control of their business, or to have the stated aim of exiting within a few years. This means that several of the active equity investor groups – be they business angels or certain well-backed investment houses – are taking the longer-term view of good returns over time. What is the family owned business getting in return? Expert outside support, often backed by experience, and capable of bringing in knowledge at management level that is of enormous help.
Looking at the debt funders, it is less about that kind of support than the much increased array of debt finance options that have emerged, particularly from asset backed lenders who are happy to lend against receivables and stock. This is often the key assets where the family have moved the property interests to be held outside the business as part of good tax and risk planning. Crowd funding has even allowed certain family businesses to raise funds with very little risk for them should the worst happen, and alongside that can be the advantage of getting into like-minded business networks that can be of use to the family’s business ambitions.
This article is from the March 2019 edition of The Family Business, our newsletter for those working within family-owned businesses. To download the latest issue, please visit the newsletter section of our website. Law covered as at March 2019.
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The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at March 2019.