1. What is corporate finance?
Corporate finance is a broad field that involves providing advisory services to businesses to help them grow, sell, or make strategic decisions. This includes supporting businesses in activities like buying another company, succession planning, and handling significant financial events such as launching new products or expanding into new markets.
2. What are the two main types of corporate finance?
The two primary types of corporate finance are equity financing and debt financing.
- Equity Financing: This involves raising funds by selling shares of the company to investors, such as angel investors, private equity, or venture capitalists. It is called “dilutive financing” because it dilutes the ownership of existing shareholders.
- Debt Financing: This involves borrowing money against the company’s assets or future cash flows. It does not involve selling ownership stakes and is often referred to as “non-dilutive financing.”
3. What are the key areas within corporate finance?
Key areas include:
– Acquisitions: Financing the purchase of another company.
– Geographical Expansion: Funding for entering new markets.
– Growth Financing: Securing capital for rapid expansion.
– Succession Planning: Managing transitions such as management buyouts or buy-ins.
4. Is financial analysis important in corporate finance?
Yes, financial analysis is crucial. It involves detailed financial modelling to assess the viability of deals, typically requiring three to five years of financial projections. These models include cash flow, profit and loss (P&L), and balance sheets to ensure that the business can service any debt and manage cash flows effectively.
5. Can I get corporate finance without a deposit or collateral?
Yes, it is possible to secure corporate finance without a large upfront deposit or collateral. Many deals can be structured with unsecured cash flow finance, asset-based loans (ABL), or through deferred consideration arrangements. However, some initial capital or commitment is generally expected to demonstrate the buyer’s commitment to the deal.
6. What are the common barriers to obtaining corporate finance?
Common barriers include a lack of awareness about the availability of unsecured financing options and misconceptions about needing significant collateral. Many businesses are unaware that they can leverage assets like intellectual property, machinery, or receivables to raise funds.
7. Do I need a broker to secure corporate finance?
While it’s not mandatory, using a broker is highly recommended. Corporate finance brokers have specialist qualifications, knowledge and relationships with niche lenders that are not typically accessible through high street banks. They can secure competitive offers and provide expert advice, ensuring the best possible deal for the client.
8. What are typical interest rates or costs associated with corporate finance?
Interest rates and costs vary depending on the type of financing:
– Asset-Based Loans (ABL): This is where finance is secured against a tangible asset within the business; some machinery, a building or IP. Generally, these come with a margin of 2-5% over the Bank of England base rate, depending on the asset quality.
– Unsecured Cash Flow Loans: These are typically more expensive, with rates ranging from 6-10% over the Bank of England base rate, reflecting the higher risk involved.
9. Can I get Corporate Finance to buy a business with minimal upfront investment?
Yes, many corporate finance deals are structured to allow for minimal upfront investment. This can be achieved through mechanisms like deferred consideration, where a portion of the payment is made over time based on the business’s performance.
While you don’t need a substantial deposit, some level of upfront investment is usually necessary to secure the deal.
10. Are there any initial costs associated with obtaining corporate finance?
Yes, there are usually some initial costs, such as fees for financial due diligence and legal expenses.