Considering an MBO During the Pandemic? Debt Funding may be the Answer

SMEs seeking finance for an MBO may need to consider alternative funding options.

A problem shared is a problem halved.

There can be no denying it. UK corporates are currently facing a lot of problems; the continued uncertainty of the COVID-19 pandemic is causing an array of challenges across every sector and geography, and there’s no playbook to navigate them. For larger corporates, there is often a board of directors who can assess the challenges and agree how to tackle them, but for smaller businesses the support infrastructure for the owner often does not exist. This can be a very lonely place to be.

Whilst SMEs in the UK have shown much resilience in the face of the current challenges, many business owners will emerge from the COVID crisis with deep battle scars that act as a real reminder that having such a significant proportion of their asset allocation invested in one business has significant risks. Resolving this imbalance in a personal portfolio doesn’t mean that a shareholder has to sell their entire stake in a business, with a partial cash extraction and transfer of some shares to the secondary management team being a halfway house.

SMEs seeking finance for an MBO may need to consider alternative funding options as mainstream banks deal with a deluge of applications for the government’s package of financial support. Transactions falling outside the remit of the CBILS and Bounce Back schemes may struggle to find investment in the short-term.

SME debt funding, like the new FDC Debt Fund, offers a credible alternative for owner-managers seeking investment between £1m and £7.5m. Flexible debt investments are structured around the cashflow and strategy of the business, making them well-suited to support owner managers seeking a full or partial cash-out.

Simon Kelsall, Investment Director at FDC, comments:

“Alternative funders often provide more rounded experience. Our team includes people with backgrounds working in private equity and industry, as well as traditional banking. This means we can take a pragmatic view of MBOs from a range of perspectives, which is increasingly advantageous for businesses seeking finance during the pandemic.

For an MBO transaction to be backable, the strength of the management team is crucial, as is continued commitment of the owner over the term of the investment. We work closely with firms to understand the people involved in bringing the business plan to fruition, shaping a deal that works for everyone in the long-term.”

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