Why Capital Advisory Matters to Growing Businesses

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As businesses across Yorkshire & Humber look to scale, access to funding remains a key priority and a common challenge. While 31% of SMEs in the region say they plan to raise external finance this year, 11% still cite access to finance as a major barrier.

This is where capital advisory plays a role: helping businesses to understand their funding options, navigate the landscape of lenders and investors, and structure finance in a way that aligns with their goals.

 

Two Types of Capital Transactions: Cash In Versus Cash Out

In corporate finance, most transactions fall into one of two categories:

  • Cash Out transactions: These involve money leaving the business, usually to benefit shareholders or other stakeholders. Examples include dividends, business sales, or management buyouts. Essentially, part of the company’s value is being extracted in the form of cash.
  • Cash In transactions: These bring capital into the business – typically to fund growth, acquire assets, or refinance existing obligations. In this case, the capital is retained within the business to strengthen or expand it.

Most corporate finance advisors focus on Cash Out deals, which tend to be larger and attract higher fees. However, many SMEs are looking to bring capital into the business to fuel long-term growth, and this type of support has historically been underserved.

 

Navigating the Lending Spectrum: Debt, Equity, and Everything In Between

Capital advisory sits across the full spectrum of funding options, from traditional debt to private equity. As you move along this spectrum, three factors generally increase:

  • Risk
  • Cost
  • Level of control required by the funder

At the lower-risk end, businesses might use commercial mortgages or asset-backed loans, which come with relatively low interest rates and minimal oversight, provided repayments are made.

In the middle of the spectrum are facilities like cashflow loans, where funders may ask for monthly financials and covenant testing.

At the high-risk end, equity investors may want a seat on the board, or influence over strategic decisions.

Capital advisory is about helping businesses to balance these trade-offs by supporting business owners with choosing the right mix of funding to keep costs manageable and ensure that control of the business remains in the right hands.

 

A Gap in the Market: Mid-Sized Fundraising

Many SMEs find themselves in a tricky position when looking to raise amounts in the range of £2 million to £7 million. These sums are often too large for traditional bank lending, yet too small to attract the attention of large advisory firms or institutional investors.

This gap has historically left businesses either trying to navigate complex fundraises alone, or paying disproportionately high fees for support. However, the funding landscape has evolved. There is now a broader range of lenders, including challenger banks, private debt funds, and specialist asset-based lenders – all of whom may consider smaller, tailored deals.

That said, accessing these funders, and knowing how to structure the approach, requires expertise and strong relationships.

 

Cost Versus Value: The Role of Independent Advice

A key distinction in the funding market lies in how intermediaries are paid. Brokers, for example, typically earn commission from lenders. This can create misaligned incentives, with higher-cost facilities offering higher payouts to the broker.

On the other hand, independent capital advisors, are paid directly by the client. While this might seem like an added cost, it often leads to lower overall deal costs, better transparency, and advice that is genuinely in the business’ best interest.

In one recent example with one of our clients, service fees on the same facility ranged from £30,000 to £125,000, depending on how the deal was structured – this highlights the importance of having someone on your side who understands the market.

Want to Know More?

If you are considering raising finance and want to explore your options, you can contact:

Scott Peters
Head of Capital Advisory at Quantuma
📧 scott.peters@quantuma.com

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