The motives why businesses seek private debt investment

How do Alternative Investments attain such high returns?

It may be surprising, but investments that offer high returns can alarm investors who don't understand how an investment provider could offer such a high level of income.

This lack of understanding accounts for the general misconception that the investments can only offer high returns because they are very high risk. There are many motives why businesses seek private debt investment, and we run through the main reasons here in this article.

Number One: Competition

We live in an extremely competitive world, so if you are a new business or a smaller concern, it can be challenging to raise the finance you need through institutional channels. One fundamental way to attract investment in this contentious landscape is to offer excellent returns to attract private capital.

Number Two: Lack of bank finance

Traditionally, banks used to finance a high proportion of business needs, in particular, property finance. However, recently, it has been more challenging to raise funding through traditional banking institutions. They take time in their decision-making, offer less financing than required and often have the option to call in the loan at any time. In their place, a raft of other funding sources bypassing the banks has grown. Private debt is one of these sources of finance.

Number Three: Speed

Many business projects, particularly property finance, require quick decisions to take advantage of very profitable projects and market availability. Our investors can provide capital much faster than traditional funding sources. Sometimes projects can be funded in a matter of weeks, providing solutions for competitive advantage.

Number Four: Flexibility

Banks and other major lenders are notoriously inflexible. With a flexible approach, providing that the investment passes our stringent due diligence, we can adapt to provide the right investment solution. So timescale, rates and the particular terms of the contract can be tailored to suit each specific project. Investment providers value this approach.

Number Five: Timescales

Bridging finance often focuses on 1-12 month timescales. Other lenders prefer 5-10 year lending deals. Generally the investment deals we take up offer investors short term propositions of 12-60 months, fitting neatly into a gap in the market, and also meeting our investment providers requirements.

Number Six: Blended finance

Often the investors provide a part of the entire financial structure; this is called the capital stack. The capital raised is often the critical 'last piece' of the jigsaw and is the project enabler. If the whole venture were to be funded by our investor's capital, the levels of return would cripple the project's viability and profitability, but it isn't.

Here's an example:
Suppose £1,000,000 is needed to fund a project. The capital stack could look like this:
Bank finance£300,0005%
Institutional funding£500,0006%
Avantis Wealth Funding£200,00015%

The blended rate across the entire finance raised is just 7.5%, which on many projects delivers the necessary viability.

Number Seven: Add-on opportunities

Sometimes a project comes up which is highly profitable, but can't be done within existing cashflow. At the same time, the company is fully leveraged with their bank, so no further funding is available. We help businesses find ways to raise this funding, albeit at a high-interest rate.

From the prospective borrower's viewpoint, the profit on this add-on is less than anticipated, but they are far better off to accept this hand-off than not doing the project at all.

Number Eight: Different security

Suppose traditional 'first charge' security on a UK property (the 'gold' standard!) is not available, other forms of acceptable security can be applied like corpora personal guarantees or corporate debentures. This might not be acceptable to traditional lenders, but with a strong business proposition and good security in place, this might be acceptable to our investors.

Of course, this comes at a price, which is higher than the regular interest rate.

It should be easy to see why there is a queue of investment providers at our door seeking access to our investor base for funds taking these elements into account. But having one or more of these reasons to require finance is NOT a reason in itself for us to bring the project to market. Every project has to fulfil our strict due diligence process.

Here's what one recent investment provider had to say about the process we took them through:

"Thank you for taking the Acorn Bond on board. Your onboarding processes and procedures are excellent. The level of due-diligence you take prior to taking on a new client is second to none. To have someone like Avantis Wealth take so much time, due care and attention before taking a client on gives us so much more confidence in your firm as we know your clientele will be of the same calibre, looking forward to our future business."

From all at Acorn Property Group

If you'd like to explore currently available investments that offer as much as 15% annual return, please call Avantis Wealth on +44 1273 447299 or email invest@avantiswealth.com

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