SVB collapse: if I need to inject cash into my business, what routes are there?

SVB collapse: if I need to inject cash into my business, what routes are there?

With the news that HSBC has acquired the UK subsidiary of insolvent Silicon Valley Bank, many UK-based start-ups will be breathing a sigh of relief. 

Nevertheless, with instability in the market remaining, businesses with large deposits in SVB or elsewhere in the revenue-based finance market will be evaluating their options. While some specialist finance providers such as Uncapped and Capchase have stepped up to offer short-term funding to help cash-strapped firms, a better alternative for many will be to turn to their existing investors.

While the downside to this approach is a loss of some equity, this can be a much better option than to rush into alternative financing arrangements that can come at a high cost over the short and longer term.

So, if you’ve deposits with SVP or elsewhere, what are your options in the case of an insolvency situation? The key takeaway is not to panic, and take time to evaluate your position.

Some institutions like hedge funds are always ready to purchase deposits in a failed institution, but this comes at a large discount. While this can free up liquidity in the immediate term, over the longer term, even if deposits are eventually returned, losses can be substantial.

Here are some ways to raise cash in a crisis, without sacrificing too much equity in your business:

If I need to inject cash into my business, what routes are there?

Simple Agreements for Future Equity or SAFEs and Convertible Loan Notes are relatively quick and easy ways to raise funding, since no equity changes hands at the outset.  These deals provide immediate cash, with shares being issued at a future funding round at a discount from the price offered to new investors. Expect to pay interest at around 8% on a three-year note,  and negotiate to repay loans by mutual agreement should this be possible prior to maturity of the note.

What about emergency funding from finance houses?

A more conventional approach to cash flow issues is to turn to emergency funding. Currently, finance houses are offering cash in around seven days on a six-month term and with no guarantee required. Interest rates are hovering at 2%. Consider outfits such as Liquidity Group, Muse and Uncapped. To meet payroll obligations, Capchase is offering a specialist finance.

The downside of borrowing in a cash crunch? Too much debt on your balance sheet can negatively affect your ability to attract investors in future funding rounds.

About our expert

Adam Kudryl

Adam Kudryl

Chief Legal Officer & Head of Corporate
Having qualified as a solicitor in 2003, Adam has over 20 years' experience in advising businesses on their growth and exit strategies. Adam joined Harper James as a Partner in 2018 and became Head of Corporate in 2022. As of April 2024, Adam’s new role is Chief Legal Officer & Head of Corporate. In this role, he is responsible for the legal services aspects of Harper James and for defining the firm’s strategic vision and objectives to achieve our long-term goals, together with our CEO, Toby Harper, and the other senior leaders.

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