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The 21st century executive

Tips for Using Debt Advisory Services


Raising capital is no easy feat. In fact, only 0.05% of small businesses and startups end up raising venture capital. While there are many financing options available, navigating the debt capital market is an attractive, albeit complex task for even the most experienced of entrepreneurs. With the help of Debt advisory firms, founders and business owners alike can more easily source capital and plan their financial futures. 

What is Debt Advisory? 

Debt Advisory refers to professional help, whether it be through lawyers, accountants, financial brokers, etc., that support a borrower through one or more transactions. 

Businesses may choose to consult debt advisory firms for guidance and resources for attracting private equity and other funding options. It may seem counterintuitive to bring on a new service when looking for funding; however, investing in advisory services can streamline the borrowing process and provide management teams with the tools for success. 

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How Can You Benefit from Debt Advisory? 

Debt advisory can help businesses plan, negotiate, and source working capital. Without them, borrowers are left to navigate the confusing terrain of debt-related products on their own, each often requiring its own submission requirements. 

Traditional lenders, such as banks, can take weeks and sometimes months to reach a decision, which means companies need to understand how long they can work with their current capital reserves. 

When you consider that big banks have a 27.7% approval rate, meaning most applications will be rejected, it's clear that most businesses will require some help to ensure they get at least some funds.  

Debt advisors and advisory groups lend their expertise, knowledge of market conditions and trends, and strong relationships to improve the borrowing process.  

Working With a Debt Advisor 

While each Debt Advisory firm will have its own processes and procedures, there are some common practices to expect. 

You can expect to work with a debt advisory firm as follows: 

  1. The advisor will review the business' goals and growth strategy. 
  2. They will then search for financiers that match the businesses' objectives and capital needs. 
  3. The advisors will then negotiate and obtain deal structures. 
  4. Finally, the advisors will also work to close the funding deal.  

Ideally, the debt advisory firm or group will take on the entire burden of obtaining funding from sourcing to close. The right advisor will reduce an organization's financial stress throughout the process. 

It’s also important to note, however, that debt advisory groups can provide other related services. This includes: 

  • Refinancing debt facilities 
  • Assisting with debt restructuring 
  • Providing general advice related to capital fundraising and debt 
  • Financing acquisitions 

What is Restructuring in Debt Advisory? 

Restructuring is a common service debt advisory firms provide that focuses on changing a client’s current structure of debt. This may be through converting some debt to equity or making changes to a current loan to avoid default. There is, however, often a price to pay for restructuring. This could take the form of higher interest rates or a one-off payment. 

What’s a Good Debt Ratio? 

The ratio of debt a company has is found by dividing the total number of liabilities by the number of assets. There isn’t a “good” or “bad” debt ratio out there. It will depend greatly on a number of factors specific for each company. That said, low debt ratios tend to be around 0.4 or lower, while high debt ratios are anywhere around 0.6 or higher. 

Choosing the Right Debt Advisor 

Once the decision is made to hire a debt advisory group, the next step is finding the best advisor to meet your needs. It's critical to have an advisor who understands your industry as well as the different financing options available.  

Before hiring a debt advisory group, it’s extremely important to first do your due diligence. 

There are really three things every management team should look for in a debt advisor: 

  1. Track record – First, have they successfully obtained funding with the best possible terms for their clients? Ensuring that an advisory group has a track record of satisfied clients indicates that they have potential relationships with investors or lenders and can make deals happen.  
  2. Specialty – Next, it's critical to know what kind of funding the firm can assist with. For example, if a company is fundraising for growth, they don't need an advisor who specializes in refinancing. In the same way, organizations looking for venture capital most likely wouldn't benefit from a debt advisor who focuses on commercial bank financing.  
  3. Knowledge of your industry – It can also be beneficial to look for a debt advisory group that understands not only the general debt market but also a business' specific industry. Service providers that niche down into specific industries likely have stronger relationships with financial sponsors who understand that industry as well, making finding the right deal easier.  

Next steps 

Debt is a tricky thing for most businesses. It's true that debt and fundraising can help businesses reach the next level. But without a strategic focus, debt can become a significant burden. 

Debt advisors offer advice not only in sourcing capital but also in restructuring and getting rid of debt. Even after a business snags a deal with an investor or a loan from a bank, keeping a debt advisor onboard can help businesses manage their debt appropriately.  

At the end of the day, these advisory groups are an investment in your business, not just another expense. For founders and management teams who really want to take their business to the next level, whether that's through acquisition financing, an IPO, or applying for venture capital, debt advisors can lead the way to success. 

Demonstrating Your Business' Potential 

If your organization develops software, you will most likely have to prove your current successes. Historic software development metrics can go a long way in convincing any naysayers. Foreworth provides software development KPIs complete with code quality metrics and team productivity metrics with historical views that let you measure and report your successes over time. For more information on how the Foreworth platform works and what we can do for you, schedule a demo with an expert today. 

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About the author
Elena Leralta

Working as Foreworth’s Chief Financial Officer, Elena possesses a wealth of knowledge on business management and finance owing to her over 20 years of experience working in the financial sector.

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