“When the winds of change blow, some people build walls, others build Windmills” – Chinese Proverb

Sam L. , Debt Advisory Director at Heligan Corporate Finance provides his views on the current market

With experience of lending money to SMEs in multiple asset classes and sizes over the course of five general elections, I like to take a longer-term perspective when advising clients. Approaches to risk will always be at the heart of borrowing and lending and I don’t expect these to change now, although the focus on which specific areas might, alongside the different behaviours of lenders.

The General Election is a large wind of change for the UK market. And the UK isn’t alone, 64 countries and a staggering 49% of the world population have the opportunity to vote in democratic elections in 2024. Those winds will blow more this year than ever before. How do ?business owner’s or CFOs think about raising funds, growth, and risk in these sorts of times?

M&A activity typically accelerates before an election. Current market sentiment around this election and the near term economic future are different this time. The acceleration in activity hasn’t emerged yet, and we are less than a month away from the polls opening on July 4th, with the intriguing optics of having an election on American Independence Day!

When it comes to debt activity during election periods, SMEs have historically held off borrowing money during times of political uncertainty. But what about SMEs who are considering borrowing for any variety of reasons? Is this the right time or should you wait? Sit out the storm?

Always looking to embrace change (I’m sure PE investors have a wry smile at a debt specialist embracing change!) I thought I’d see what ChatGPT had to say about the best time for a business to borrow money. Whilst I can’t contradict the accuracy of the statement: “The best time for a business to borrow money depends on various factors” it doesn’t help me or my clients. So back to me to provide my opinion…

The approach to risk hasn’t varied across the ages but the dynamics of assessing individual business who want to borrow money is based on prevailing sector conditions and lending behaviours at the time.

What type of businesses are looking for debt?

Looking beyond the general trends we see that there are still businesses who want to borrow money and put their faith in Debt Advisory professionals to run the process for them, with each business and sector having individual traits that may or may not be affected by the election cycle.

• They could be in strong, growth sectors such as infrastructure services, construction tech, advanced manufacturing, TIC (Testing, Inspection & Compliance) or medical services
• Another growth sector is National Security, Crime Prevention and Public Safety (where our Heligan Investments team specialise in providing PE funding), and with whom we work closely to explore debt options for portfolio companies and potential new investments
• SMEs could be looking at the growing economy with the real prospect of lower interest rates and taking a view on getting themselves prepared to borrow
• There’s even the chance none of this is relevant: a business could simply be looking to take advantage of opportunities specific to them, to invest in growth due to competitors’ inertia or to refinance to a less risk averse lender

And of course, if there is a period of stability then these businesses will be best prepared to take advantage of it quickly, getting a jump on their competitors. Whoever wins the election, we should enter a period of relative stability as the next government is expected to be in place for five years, although expert commentators mentioned that in 2019…

How do the different lending behaviours drive debt options?

The market view is that debt transactions are taking longer, with additional diligence required, which means that anyone looking for borrowing in 2024 or early 2025 would be well-placed to start the process imminently.

The general increase in timescales isn’t down to a lack of funding in the market, indeed there are more lenders than ever, but more a changing of appetite from lenders throughout the process, requiring the additional due diligence or halting the process altogether. It’s also another reason to involve a specialist advisor sooner rather than later in the process, so some of these issues can be addressed in the early stages and not only surface at the due diligence point.

As alluded to above, there are plenty of other options with the rise of Private Credit (also known as Debt Funds or Private Debt) providing multiple solutions for borrowers. This market in particular has seen an explosion in offerings across the lending asset classes, from fully secured property-backed lending to ABL+ solutions and cash flow, mezzanine and quasi-equity structures. Traditional PE activity slowed down over the last 18 months, as a result plenty of PE money was redirected to these markets to enable a return of some description to shareholders.

At Heligan Group, our Debt Advisory offering encompasses more than just finding debt options. Our background is a combination of direct lending to SMEs, industry experience and lead Advisory which allows us to provide a unique mix of experience, advice and creative lending solutions across the whole market between ￡5million-￡150 million of debt.

Are you a wall builder or a windmill builder? Either way it’s prudent to be prepared and ‘debt-ready’ to take advantage of opportunities and be ready to move forwards quickly when the time is right for you.