Interview with Matthew Padian for the Winter Edition of Banking & Finance Quarterly Bulletin

In this edition we interview Matthew Padian, a Senior Associate in S&B’s Finance, Restructuring and Insolvency Group (or “FRI” for short).  Matthew advises lenders, borrowers and other stakeholders on a wide range of banking, finance and restructuring transactions.

Can you give a short overview of S&B’s FRI group?

We are a shiny new department within S&B, combining the banking & finance team that previously formed part of the Corporate department with the restructuring & insolvency team that used to sit within Dispute Resolution. The marriage of the two “teams” is testament to the continued development of the banking practice and the rapid growth of our restructuring and insolvency work, and the many overlaps between the two. The group comprises 14 lawyers and is going really well so far, and we can draw on other specialists throughout the firm too where a transaction demands it, such as our fantastic real estate lawyers when doing a property finance deal.

Work wise, we help all kinds of international and domestic borrowers, funders and other stakeholders on the full range of finance and restructuring transactions and contentious/non-contentious corporate and personal insolvency.  We have lots of experience in acquisition, real estate, asset based and trade finance, private client, corporate and shareholder loans, restructurings (solvent as well as distressed), distressed/accelerated M&A sales, insolvency process planning to minimise creditor losses and mitigate risks for directors, “bankruptcy tourism” and insolvency-related litigation.

What kind of work has been keeping you busy recently?

I have been helping an entrepreneurial fund which is borrowing to acquire nursery businesses.  At the other end of spectrum, I have been advising an international bank which has lent to a hotel project which is in financial distress so we are looking at possible restructuring solutions.  I have also been helping our Corporate M&A team on the loan aspects of a transaction involving a private equity investment in an owner-managed business.  So, quite a varied diet of work!

What do you think are the key issues which entrepreneurs/owner managers should bear in mind when looking for debt funding for their business?

It is worth saying that entrepreneurs/owner managers can raise money in different ways but most businesses go down one of two routes: debt or equity.

Debt enables the entrepreneur/owner manager to retain ownership of his/her company, but requires repayments and accrues interest as the debt is repaid.  Equity generally means issuing shares in the company for money with the investor owning part of the company and sharing any returns on exit or any dividends in the meantime if the company makes enough profit.

But you are talking to a banking lawyer here, so let’s assume you are looking for debt finance.  My top tips for the entrepreneur/owner manager are:

1. Think carefully about the amount you believe you require.  Overestimate and you may pay interest on money you do not need; equally, underestimate and you may need to raise more money at short notice, against a backdrop of changing market conditions and that can be more difficult and expensive.  Also, do not forget about your working capital needs and how you will fund them.
2. Consider sources of funding and timing. It is generally a “borrower friendly” market at the moment with many different types of funders willing to lend – high street banks, “challenger” banks such as OakNorth, debt funds and even crowdfunding platforms. You want to build a relationship with your lender so it is worth thinking about who they are, how they view your business and how they might react if your business hits some headwinds.
3. Think about your internal controls, reporting and monitoring. You are likely to have to deliver regular reports to your lender so make sure you have adequate systems to do so.
4. Think about future growth plans and ensure your financing terms allow sufficient flexibility to allow you to achieve them.

What you do think are the main challenges facing entrepreneurs/owner managers at the moment from a finance perspective?

1. Firstly, as I touch on above, borrowers are not short of options in terms of potential sources of debt. Being spoilt for choice means borrowers need to consider carefully which debt provider best understands their business. So, if you are looking to grow your business through acquisitions, be sure to pick a debt provider who will help you do that. It may not always be the lender who offers the most debt at the lowest interest rate.
2. On a related note, identifying which debt product best suits your business is proving increasingly difficult given the vast range of different products on the market. These include short-term to long-term products, including bank loans on syndicated or bilateral terms, bonds and crowd-funding arrangements.

More generally, the current macro-economic climate is not necessarily an encouraging one for debt averse entrepreneurs/owner managers, what with challenges such as Brexit, commodity price fluctuation and rising interest rates. That said, a moderate amount of debt on the balance sheet on the appropriate terms can prove a real enabler for businesses intent on achieving their growth plans.