Philip Chapman, a director in the Corporate department at Thursfields Solicitors has described the different options for business investment in a post-pandemic environment.
Philip was commenting after the first steps were made by the government for carefully planning to move out of the COVID-19 lockdown.
He pointed out that although several new loan options had been offered by Chancellor Rishi Sunak, all meant increasing borrowing, whereas investments by other parties had to be considered carefully as they often meant exchanging shares for funds.
Philip said: “Many companies will be considering ways of attracting investment into the business to facilitate growth and exploit future opportunities that may arise following the pandemic.
“Such investment may come from third party sources or, indeed, by ways of working more innovatively as a business, for example, by restructuring the current service to meet future customer needs or offering share options to employees.
“In terms of external sources of funds, the government has introduced finance such as the Coronavirus Business Interruption Loan Scheme, the COVID 19 Corporate Financing Facility and the Bounce Back Loan.
“Although such facilities will be attractive to some businesses, company directors and shareholders will need to be conscious that such facilities will have repayment terms and will increase the company borrowing.
“Alternative routes to investment can be by way of investment from third parties such as venture capitalists, business angels, crowdfunding and from family and friends.
“It is important that the terms of such investment are carefully negotiated and documented, for example, the investors may well be asking for a stake in the business in return for the investment.
“The two important questions will be how much investment will be needed and what is the business strategy.
“It is therefore important that when seeking investment, be that from a government finance facility or alternative investment routes, that companies ensure that they retain as much control of their business as possible and control both their business and personal risk.”
Philip added: “The investment or loan deal will need to be negotiated and carefully reflected in documents such as a shareholders’ agreement with the former and loan agreements with the latter.”