TIME WAS WHEN borrowing was fairly straightforward for the FD of any high-quality company. They would call a relationship bank and arrange a loan in relatively short order. This was the norm in Europe for decades up until the financial crisis.
But with non-bank and alternative lenders scaling up their direct lending activities, corporates have more choice than ever before. At a time when traditional banks are making a comeback to the lending markets, why would a company seek out alternative forms of finance?
What tends to strike a chord with the CEOs or company boards is the tenor of debt available from alternative lenders, usually up to ten years, a term that banks simply can’t offer to corporates.
This enables a company to align a proportion of its debt with its long term strategy and liabilities, or finance longer term investments to enhance future growth of the business.
In our experience of company funding, involvement from the wider board, in addition to the FD, often brings a more strategic view which helps improve relationships and understanding between both parties.
The appeal of diversifying funding sources is not lost on the management of a company that may have needed to refinance at some point in the past few years. While bank financing may be cheap at the moment, there are no guarantees that it will stay that way.
Non-bank finance can complement the shorter, more cyclical traditional bank facilities, resulting in a robust and diversified funding structure designed for the long-term.
James Pearce is head of direct lending at M&G Investments