Many start-ups and emerging companies come to us wanting to borrow funds to support the growth of their business.
Frequently they have also diligently completed all the legal work required to have a special purpose vehicle funding platform in place and are of the belief that this helps in the quest to secure debt funding.
When we come across this scenario at Vixory Capital, a frequent discussion starting point is to ask the proprietors, “would you lend to your business for 12 months, directly or via the SPV?” and then see what their response is.
Whilst the typical response is an immediate “yes!” without much thinking, those that understand where the question is heading usually reply along the lines of being uncertain that they would have the funds to repay the loan, as the borrowed funds would be locked up in assets of the business or otherwise spent, with the return revenues yet to be received from that spending.
These more thoughtful responses then provoke a discussion about how the business generates its revenue and what track record or consistency it can demonstrate to support some form of debt burden, along with paying the operating expenses of the company.
Once this mindset has been adopted by a potential borrower and they begin to understand how a debt provider thinks, then a much more rational and productive conversation can be had.
Whilst the list below is by no means comprehensive, some topics that are frequently mentioned are:
| supply of equity | business cycles completed | customer growth profile |
| ability to raise new equity | cash burn/generation | customer performance profile |
| asset repayment profile | security (and its liquidity) | product focus/narrowness |
Subject to the nature of the business, there are typically many more items that need to be considered and addressed and this is where Vixory Capital can help you package your message.
Please feel free to engage with Vixory Capital to understand more.