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Family Firms Open To Broader Financing Options

14th August 2017 Paul Andrews

Latest research highlights that there is a willingness by family firms to consider alternative sources of finance for their business.

Family businesses tend to take a cautious approach to financing in their business, as they do with many other business areas, focusing on long-term stewardship of the family business and protecting the ‘family assets’ for future generations. Latest research from the team at Family Business United (‘FBU’) highlights that there is a willingness by family businesses to also consider alternative sources of finance.

Highlights

72.5% finance their business through bank loans and overdrafts

42.5% felt access to finance is an issue for family firms

35% would consider investment from a family business or a family office

5% currently finance their business with investment from non-family shareholders

This latest research reflects an element of tradition in how firms are financed. As Paul Andrews, Founder and Managing Director of FBU explains “We undertook this piece of research to explore not only the sources of finance currently used by family businesses across the UK but also to gauge whether these businesses have access to the funds they need. With 42.5% of family firms stating that access to finance is an issue, and a further 22.5% saying they are unsure, there is evidence to suggest that access to finance may indeed be constrained and may be holding back the growth of these businesses.”

As Paul continues, “The sources of finance available and used by family firms is not surprising as many would have started out historically with funds from the founders themselves or family and friends before being in a position to take out a bank loan or overdraft.  As businesses become more established with more professional governance, reporting and management structures in place they have a greater availability of sources of finance to choose from, one of them being investment from third parties.”

The key sources of finance for family firms in the UK

1.       Bank loans and overdrafts (75%)

2.       Hire purchase and leasing (42.5%)

3.       Asset finance (40%)

4.       Investment from family shareholders (22.5%)

5.       Government grants (22.5%)

6.       Factoring and invoice discounting (20%)

7.       Mortgages (20%)

8.       Investment from non-family shareholders (5%)

9.       Business angels (2.5%)

“A really interesting take-away from the results is that whilst only 5% of respondents have received investments from non-family shareholders, 35% would consider investments from a fellow family or family office.” added Paul.

Eli Bronfman from the Bronfman Family Office, sponsors of this research added, “We are trying to provide a much-needed solution for family and entrepreneur owned companies – funding shareholder liquidity or growth, whilst allowing them to maintain control. In doing so, we see ourselves as one of the few groups acting as respectful, long-duration, value-added minority partners.”

“It's unfortunate that the investment banking and advisory infrastructure is not accustomed to properly servicing these family and entrepreneur-owned firms. We hope that more family offices will come to market in due course, allowing families and entrepreneurs more options in helping them do what they do best: run and grow their businesses – businesses that provide jobs and support both local communities and the national economy. As a business that makes long-term, minority investments in family owned firms and not having a predetermined fund life and exit strategy gives us the flexibility to make long-term decisions in the interests of the family businesses, and we are delighted to see the willingness of the sector to consider family offices as a source of investment in a positive light.”

As Eli concludes, “In 15 years’ time, we want to be able to say that we created many meaningful partnerships with other families in Europe – partnerships that can proudly continue the family legacy for generations to come.”

Download a copy of the report here

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