Financial Intermediary

Financial Intermediary

We Aim To Find The Best Matching Corporate Financing;
Equity Investors (Co-Shareholders), Bank Loans And Overdraft Facility,
Through Other Financial Institutions Or Combination Of These.

Financial intermediary services

Asia Investment Services as a financial intermediary offers independent financing consulting, and we do
• have access to a network of financial institutions and investors
• select, contact (anonymously if desired), attract and discuss options (fund finder role)
• prepare and submit financing applications
• evaluate received financing offers
• negotiate the terms & conditions

Some tips before contacting financiers

The time that banks and investors easily provided financing to entrepreneurs in SMEs is no longer. Banks have become reticent due to the current economic situation and the position in which they find themselves. A long-term relationship of trust with the principal bank no longer guarantees a successful financing application. Market funding for SME’s, such as venture capital, private equity and crowdfunding, on the other hand, is minuscule with only 10 to a maximum of 20%, they can be selective as there is an oversupply of financing applications. Getting a funding is certainly still possible, but it only requires a different approach than before.

Prepare well

Proper preparation is crucial for getting financing. You can no longer suffice with a concise investment plan. Banks and investors have become more critical. They will assess the entrepreneur and the company performance and compared those to the sector average. The facts and figures do now count, and by adequately calculating the plans and having them checked by an expert or a financial intermediary, you can positively influence the bank’s report.

Identify risks

The presentation of plans must also show and taken into account possible risks. Do not be too optimistic and make good risk analysis, and outline these in various scenarios. What can happen in the worst case? If you do not, the bank does it yourself, and that is something you do not want.
Provide a professional appearance
A bank and investor will not ‘participate’ in an entrepreneur emotion. So approach them professionally, provide a well-documented credit application and be assisted by a business & finance expert. A financer must have immediate confidence in the entrepreneur and the company.
Ask for government regulations
There are various government and local regulations that provide some financial back-up. Only a few entrepreneurs use these government guarantees although this scheme can remove the funding deficit, which arises because the bank does not finance more than a maximum of 60% of the application.
Investigate alternative financing solutions
With a bank, a credit application is no longer assured for receiving finance. These days it seems that only 50 to 60% (used to be 75 to 80%) of the applications are honoured and some even just partially. It is, therefore, necessary to investigate, together with a financial intermediary, multiple possibilities and also alternative financing methods.

The financing goal

The above tips are first preconditions. Keeps existing, the most critical questions about financing is always: where do you find the best funding composition for a business:
• long-term reliable, acceptable conditions and cost affordable.

Financing motives and use of funds

When financing business activities it should be clear, the motives for financing and for what the available financial resources will be used for. This can be either be or a combination of;
• growth, >30%
• asset purchase (excluding/not real estate), 25-30%
• refinancing of existing loans, 25-30%
• real estate purchase, 10-15%
• financial restructuring balance, 10-15%
• business acquisition, 10-15%
• innovation, R&D, 5-10%
• cash flow fluctuations (temporary) 5-10%
• export overseas, <3%
• specific projects, <3%
• start-up financing (seed phase), <3%
• business crisis survival (losses), <3%
Asia Investment Services as a financial intermediary, have noticed that there is an incorrect impression of those funding reasons, as it is expected that the majority of all the financing needs are for growth and start-up companies, whereas this is only in 1/3. To give a better notion, we have provided above, an indication of the underlying reasons for the funding applications.

Reasons to reject funding applications

Below a list of reasons, given by bankers and investors to deny and not get to a successful finance funding agreement. So be prepared and let your financial intermediary submit a winning funding application.
• macro-economic concerns
• improper use of funds
• lacking persuasiveness and (future) information method
• lack of focus on business and growth
• uncertainties, conflicts and (possible upcoming) legal procedures
• other treats and risky conditions that may arise
• limitations of existing financing method
• no confidence in the entrepreneur
• involved persons and stakeholders
• no faith in the business model
• no solid or realistic business plan
• inaccurate or incomplete application documents
• lack of financial management procedures (monitoring reports)
• poor outcome audits (due diligence)
• an insufficient or weak management team
• bad, poor or no credit score
• bad or lack of operating history
• inadequate cash flow
• deficient customer base
• earnings and/or profit too low
• weak (declining), difficult or risky industry
• still an early stage start-up
• too much debt load or maxed/high debt utilisation
• company size too small or too big
• insufficient collateral
• insufficient personal guarantees
• not appropriate funding amount (minimum and maximum range)

Types of financing a Business

In general, there are 5 ways you and your financial intermediary can request for to finance the enterprise in itself or a combination.
1. Personal financing by entrepreneur
2. Debt financing (loans)
3. Equity financing (co-shareholders)
4. Asset financing
5. Alternative finance options
Note: Debt and equity financing are the most important and therefore we will elaborate on this in this article about financial intermediary.

1. Personal financing by entrepreneur
• bootstrapping
– start running a (new) business on personal finances and operating revenues, focus on fast sales and generating a positive cash-flow
• savings
• home equity
– utilise home equity, often allows a tax deduction on interest
• utilise life insurance or retirement plan
• take (part-time) job
• sell belonging for cash-value
• credit cards
– use credit limit at very high interest rates
• donations or loans from friends and family (peer-to-peer)
– the danger of disturbed relationships due to changing relations and (unspoken) expectations,

2. Debt financing
– traditional lending money from financial institutions, businesses or individuals, which mostly will get a kind of collateral and become creditors (of debt) which must be repaid with interest.
• friends & relatives
• banks loans
– banks are the most used source to finance on-going business with a solid track-record, business plan and sufficient collateral.
• factoring and invoice discounting
– accounts receivable financing, selling businesses accounts receivable to a factor financial institution
• overdrafts
– credit extension of a lender when there is no money in account available
• commercial finance companies
– can be considered when banks do not accept as these commercial finance companies rely mainly on the quality of collateral, but costs of these loans will be higher
• bonds
– convertible debt of asset-backed loans which lender can convert in future equity in the business
• hedge-fund lenders
– high lending costs and penalties for early repayment, hedge funds concern is business information and future (synergy) deals in an industry

3. Equity financing
– raising capital through the sale of a part of ownership (shares) of a company
• friends & relatives
• angel (or informal) investors
– personal private capital investments, mostly in SMEs
• venture capital
– risk capital by VC’s for new or expanding business.
• IPO (Initial Public Offering)
– a private company going to the stock market
• partnerships and mergers and acquisitions (M&A)

4. Asset finance
– term payments for use, often one can only become the full owner if terms are fully paid and a final purchase price has been paid
• leasing
• hire purchase and refinancing

5. Alternatives, other options
• crowdfunding
– public raising online money for a project or a business from –
• project financing
• trade & export finance
• grants
– a sum of money or loans for a particular business purpose given by a government or organisations
• government programs
– financing of small businesses and new ventures, by providing, mostly in a debt financing concept, a lender repayment assurance for a loan
• suppliers credit or lending
– due to deferred payment or more extended payment terms or by loans, the drawback will be the mandatory purchase
• customer lenders
– a kind of local crowdfunding, not online, but neighbourhood customers who do trust and like the business
• micro-loans
• alternative lenders
– can be found online, but sums will be small
• sales and leaseback
– obtain cash, sell assets to a financial institution and rent them for a guaranteed period of time. make
• financial restructuring
– reorganise the business financial debt and equity structure
You and your financial intermediary

Financing lifecycle

1. Concept Stage.
– the entrepreneur has an idea and begins to explore and starts the business
2. Pre-Seed Stage.
– plans are developed and tested on a small scale, and at this stage, typical relatives and friends could provide loans or investments
3. Seed Stage
– initial financing can lead to product development, market studies, management team building, sales and business plan development. Finance needs will usually be range $250,000 to $1 million, mainly for product and need validation
4. Early Stage – Start-up
– the intermediate phase where operations of sales and manufacturing are started
5. Early Stage – First Stage
– initiate expansion of commercial manufacturing and sales
6. Formative Stage – Second Stage
– stage of promising and beginning to make some profits, often 2 to 3 years of existence, the goal is to develop and improve, but mainly to increase sales.
7. Later Stage – Third Stage/ Expansion
– profitable business, planning a major expansion of the company, investments in assets etc. average over 5 years of existing, investors will consider to step out by a M&A / strategic buyer.
8. Later Stage – Mezzanine (bridge)
– the ultimo, planning to go public, finance bridging between expanding the company and the IPO

Balanced-stage financing is the term that is used extensively and refers to providing additional funding in a stage.

Death Valley Curve is an expression used in risk capital to refer to the vulnerable period of the start-up company in the period from concept to the moment when it actually generates income and comes out of the valley.

Asia Investment Services as a financial intermediary, is typically invited in Seed stage, but we have to admit that start-up companies in seed and early stage (first stage) rather complicated is with a very low success rate. Situation changes if there is or on short-term, a positive cash flow.
For equity financing by professional informal investors or venture capital firms in seed phase is less as 0,5% and in second stage less as 3,0% success rate on applications. (USA figures 2014)

Debt vs equity financing

To make a comparison and make a choice in the best fit financing, we have listed the advantages and disadvantages of debt and equity financing.
But as a financial intermediary, we see that in fact the real selection factors are extremely limited, and will be determined by
– the presence and the willingness to make available collateral
– the financial leverage ratio (financing by equity and debt) 20 to 35% equity to 65 to 80% debt financing
– if there is in the short-term, no positive cash, risk capital seems to be the only solution
– whether the required resources and growth can be achieved without equity financing
– the objective is to grow very fast and large despite the requirement to full or partially give up business ownership.

Advantages debt financing
• less complicated, faster procedures
• retain control, a lender has no say in management
• tax advantage, interest is tax deductible
• easier planning, repayment and costs are known for budget and plans
• maintain business ownership
• mostly overall cheaper in the long run (if capable to postpone equity financing)
Disadvantages debt financing
restrictions on non-core business opportunities and/or other financing options
• good credit rating and qualification needs to be accepted by the lender
• cash flow must be sufficient
• discipline, in repayment and other obligations (f.e. transfer AR – accounts receivable)
• collateral, sufficient value available and risk of losing assets and personal guarantees
• high-interest rate and variables depending on the business itself but also on macro-economy

Advantages equity financing
• creates working capital, due to no repayment obligations (as in debt financing)
• improve creditworthiness
• improves loan options as it will have a better ratio of financing by equity and debt
• obtaining additional knowledge
• learn and grow faster
• permanent finance source for next stages
• equity funders will not easily force their business into bankruptcy (compare to debt financers)
• retained earnings, internal finance source, postpone dividend and fees
Disadvantages equity financing
• more complicated and needs time to develop
• risk of mismatch in a long-term connection to each other
• reduced of shares/ownership (although with the intention to grow in value)
• have to meet the mutual expectations
• costly, investors take a significant share of profit
• loss of control, co-shareholders will be involved in the management
• losing power and swiftness in decision-making
• risk of potential conflicts
• time-consuming (to inform co-shareholder), the danger of losing focus on business
• risk of misuse of shared information to potential investors
• possible legal and/or regulatory issues to comply with at raising finance

Our advice is: always evaluate the pros and cons together with your a financial intermediary, and if necessary, draft a realistic short/medium-term financing plan