Following a prolonged period of challenging trading conditions, mid-market businesses have an opportunity to take advantage of the imminent turn in the economic cycle to drive growth, provided they have access to the right funding lines to boost capital and cash flow.
“Stubborn inflation, sustained high interest rates and constrained economic growth off the back of intense load-shedding and global supply chain challenges created a tough trading environment for business over the past few years,” explains Hazel Banach, head of product for Investec’s business lending.
In response, Banach says business owners have taken a cautious approach to funding, with capital expenditure being directed to infrastructure that “keeps the lights on”, and a focus on managing their working capital to counter the squeeze from suppliers and debtors, and to adapting their procurement processes.
With consumer and business confidence improving, businesses will be looking to catch up on this period of forgone growth while also looking to take hold of opportunities to invest in renewed growth, be these organic or acquisitive in nature. While strategies to scale will be unique to each business, key to each will invariably be access to capital and having the right people on board, both within and alongside their business.
All too often realisation of an opportunity is hindered by adopting the wrong capital structure. Lenders should accordingly also be a thinking partner, understanding the uniqueness of the business, its practicalities, its strategy and the nature of the opportunity to ensure that the capital solution is an enabler, be this working capital, quasi-equity and/or longer-term debt.
“As mid-market businesses emerge from their holding pattern aimed at protecting their business through a trough period, they will need access to funding bespoke to their growth needs,” says Banach.
With debt remaining one of the cheapest forms of funding, in that business owners do not lose any part of their equity and remain in the driver’s seat, it is pivotal that their banking partner sees itself as an extension of their business, knowing what funding structure is most fitting to requirements, but also being adaptable to the changing needs of the business to ensure business owners have the ability to protect, run and grow their business in line with prevailing market conditions.
It’s about having the backing to be responsive to change and opportunity. Being able to speak with people who know and appreciate your reality, knowing that there is more to a business than just numbers, and being able to explain and demonstrate its impact.
Mid-market businesses are also the backbone of our economy, casting a net for broader participation, so solution-seeking should encompass an understanding of their full value-chains, enabling them to support those that support them. For example, looking to working capital solutions that enable the purchase of stock on shorter terms, or the ability to extend their customer base to those needing longer payment terms.
“Finding a banking partner that thinks in this way will unlock funding solutions that both support the business and that place it in the best position to create an ecosystem that drives meaningful growth,” she concludes.
Top Image: Supplied. Investec.
