Raising Debt? Do This First.

Thinking about raising debt finance for growth, refinancing, acquisitions or working capital?

In this episode of The Fractional CFO Show, Adam Cooper speaks with Steve Cockell, Founder of Obica Business Funding and experienced commercial debt advisor, about how the SME funding landscape has changed, and what founders must do before approaching lenders.

They discuss:

• The decline of traditional relationship banking
• The SME funding gap between £500k - £2m
• Invoice finance vs unsecured cash flow lending vs asset-backed facilities
• How to craft a compelling funding narrative
• When to use a debt advisor
• What lenders really look for in today’s credit environment

If you’re planning business growth and want to use debt finance strategically, this episode will help you approach funding with clarity and confidence.

Transcript

Adam Cooper (00:02.109)

Okay, so today I'm joined by Steve Cockell, the founder of Obica Business Funding and Steve is a highly experienced debt advisor with a background in commercial banking and he advises SME owners on how to successfully raise funding for growth, for refinancing and acquisitions. So Steve, welcome to the Fractional CFO show. How are you doing today?

Steve Cockell (00:25.235)

Thank you, Adam. Yeah, I'm doing very well. Thank you.

Adam Cooper (00:28.18)

Excellent, excellent. Well, thank you very much for joining. today's conversation is going to be all about how the SME, small and medium size entity, lending landscape has changed and why so many founders struggle to access funding in that small and medium size business range and what business owners and their advisors can do to improve their chances of success. So Steve, to kick us off, would you mind sort of briefly?

Steve Cockell (00:45.119)

Mmm.

Adam Cooper (00:56.088)

Describing your background. I see that you started out in banking. Now you run this debt advisory practice. So could you tell us a little bit more in a couple of minutes about what you do?

Steve Cockell (01:07.561)

Sure, mean, as you say, my background is in banking. I started off at NatWest in the days when we had sort of a branch on almost every high street and all of the full range of sort of banking services were delivered through those branches with bank managers inside who had authority to be able to look after their customers and grant them loans and overdrafts. Sadly, those days have long gone. My last...

role, I worked for a couple of different banks and my last role, I went back to NatWest and I was the person responsible for the leverage finance team in London, really supporting medium sized private equity firms who are investing in and buying businesses with a view to sort of improving performance and growing those businesses.

I've done lot of acquisition finance in my time, but I've really looked at every sort of aspect of funding for businesses in my banking days. I've now sort of moved across into what you might say the other side of the desk on the client side, trying to help them navigate what is a very different and difficult banking market. I'm now in my ninth year really helping businesses to

find the sort of funding that they need so that they can pay their bills as they fall due, have flexibility to run their business, look to grow and invest in their business and perhaps execute mergers and acquisitions, a whole range of different purposes there. And the reason why my role exists and people like me are out there is because

The high street banks have not only sort of slowly but surely disappearing from the high street, they've completely changed their business model. And those high street banks, everybody knows, they do less than half of all the lending now into the SME sector. So there's a lot of new banks and new funds have come into the market over the last 10 to 15 years. So it's just trying to find the right home and the right sort of facilities to allow SMEs to fulfill.

Steve Cockell (03:32.412)

their own business plans.

Adam Cooper (03:34.543)

Excellent, very clear, very comprehensive and it takes us nicely on to our first topic that I'd love to talk about which is how that landscape has changed and as you say, when you were a boy, when I was a boy, there were high street banks on every high street, it was a lot more simpler really I guess in terms of the ability for small businesses to borrow funds from their high street bank.

changed a lot over the last 10 to 15 years. Why is it that it's changed so much and why do founders in your experience typically underestimate what they need to do in that space? see a lot of founders not really understanding what they need to do. Why do you think that is and how can we help them? How do you help them to navigate that landscape?

Steve Cockell (04:29.566)

Yeah, well, I think the first thing that the reason why we've had this sort of huge change in the funding process in the UK now, you know, stems right back to the global financial crash, because at those sort of years leading up to sort of 2008, 2009, the banks were

very happy to try and fund businesses of all shapes and sizes, sort of pitching and competing for that sort of business. And it was quite sort of reasonably priced debt, I suppose you would say. So it was a period that obviously, as we know now,

the crash happened and a number of banks went out of effectively run out of money and went out of business. But all of the banks were and have since been looking to refocus their activity to become safer institutions. And as part of that, the regulators have really stepped up the oversight of those banks and their activities.

And one of the consequences is they've made it far more expensive for banks to provide that sort of medium term funding into businesses. We get into some sort of technical jargon here, I'm going to sidestep for you and for the listeners. But it meant that it created a gap in the market which the banks were no longer fulfilling. And so a lot of new capital has come into the UK market.

You know, lots of new banks have been formed. Some people have heard of some of these banks. They're online. They haven't got branches in the high street. Some people haven't haven't heard of them. But what is at the heart of the issue for SMEs and what and the most common complaint I get now is if you compare in in the sort of, you know, 15 years ago, a company would have a dedicated

Steve Cockell (06:56.422)

relationship person in the bank who would know their business and they would know that person, there would be a proper relationship there. And if they had a requirement for funding, they knew who to contact and they can have a meaningful and worthwhile discussion. you know, nine times out of 10 or eight times out of 10, they would be able to get the funding that they needed. That has not only broken down, but a lot of times the SME business owners

don't actually have anybody dedicated to run their account, or if they do, they don't know who they are. And they're effectively, if they want to speak to their bank, they're sort of making calls into what is sort of a call center type environment to try and make a request for funding. So they are really lost in this. And what's happened is these new

Adam Cooper (07:52.431)

And Steve, can I just... No, I was just going to ask a question about that, because obviously, as you say, there's a lot of new institutions that have popped up, online banks, challenger banks, private credit, debt funds, all of these different types of lenders today than perhaps 15, 20 years ago. And you mentioned about the relationships, the service that they get. Is that something that...

Steve Cockell (07:55.218)

Yeah, no, dive in.

Adam Cooper (08:18.802)

some of these new entrants to the market are now addressing. Is there a sort of a higher quality of service with the high street banks versus the online banks? Do you see a difference? Is that a differentiating factor?

Steve Cockell (08:35.677)

I think in the funding area, if you're talking about funding a business, it's more about the fact that they have an appetite to provide this sort of funding for businesses. have, they're set up, effectively sort of set themselves up to be able to, you know, agree those loans.

albeit they are more expensive. mean, they are still more expensive. So the price has gone up, but they are absolutely completely sort of focused on looking to sort of fund UK businesses. So there is appetite within their own particular business model. A lot of times what they're not doing, they're not replicating sort of the...

full sort of account structure that you would see in terms of making payments and deposits and such like. You will get online banks that do that. I mean, my own business banks with with Starling. And if you've got very simple requirements and you're happy to, you know, you're not paying cash in over the over the bank account, you haven't got any sort of complicated degree of sort of payment profile, it's pretty straightforward to run both personal and business accounts through some of these online.

Adam Cooper (09:55.224)

Mm-hmm.

Steve Cockell (10:00.592)

online banks these days. what I'm saying is, from a funding point of view, that's where the search for funding for business owners needs to widen from what they have traditionally thought about.

Adam Cooper (10:13.836)

Yeah, makes sense, makes sense. And then in terms of the kind of the biggest myths, I guess, you that you see for the clients that you work with when you're trying to access them funding in this new environment, what are some of those myths that you hear from founders about the availability?

of debt finance, if they're looking to raise debt finance in the current environment, what are some of those myths that you hear? A lot of our audience are founders and a couple of lines of advice, I guess, around addressing some of those myths would be very helpful.

Steve Cockell (10:53.531)

Yeah, I I don't know. I don't know if they're myths, but certainly there's probably a long held belief when you're approaching a bank that the only thing the banks are interested in is the numbers. Are the numbers going to work for the bank's credit requirements? Is there sufficient cash flow being generated that can service the loan?

with a margin of safety for both the lender and the borrower. And that's all you've got to sort of be thinking about. And that is sadly, or not sadly actually, I think this is a good thing when I think about it. When you look at the credit assessment, that's not the most important thing. I mean, the numbers have to sort of fall in to the area of viability. what the lenders are looking for above everything else is the people running the business.

They need to buy into the management capability and understand that whilst many things have changed over the years and over the decades, this still remains the number one factor for any sort of credit assessment. And that's where the narrative matters more than the numbers. You need both sides of this to be able to put a proposal together that will get you the best results.

I think management capability, the background of the managers, how they are managing the business alongside all those other normal facets of what the business does, how they're positioned in their market, how do they stack up against competitors, the issues around their client base or suppliers, the usual sorts of things that you would deal with as well, Adam, very important factors in terms of bringing the strategy together. But really, the

the non-financial parts of this are as important, I would say more important almost than the financials.

Adam Cooper (12:59.896)

That's really interesting. And you don't, you don't think of that obviously when you're a founder trying to raise finance.

The focus and our focus, frankly, with the clients we help is very much on the numbers. There is obviously a narrative element, but, you know, there's certainly not the same amount of time that's gone into by the business owner in crafting that narrative. And from what you're saying, it sounds like the equal importance of the story behind the numbers and how founders think about telling that effectively alongside the numbers is critical, right?

Steve Cockell (13:34.171)

Yeah, yeah, and that's a very nice way of putting it, Adam. I think it is crafting a compelling story of where the business has come from, where it is now, where does it want to get to? You need to get the lenders on side with the strategy of that business and where it's going. I fully sort of have sort of had to explain to people, of course, bankers are generally looking at what the evidence is in front of them.

necessarily putting a loan in place because there's a very sort of good plan in terms of really taking a business, sort of growing it both in terms of revenue and profit over the next three years. They are looking at where the business is now, but they do need to buy into that growth dynamic and those sort of future.

facets of how the business will be performing. But essentially, know, they are loaded with a bankers looking for that they're looking for reliability of earnings predictability of earnings if at all possible. And so they're sort of building up in their minds and what what I do help help the help the clients sort of put this together in terms of a proposal, something that can give

the lenders a confidence to make a positive decision. I mean, another myth is quite in, mean, what I'm saying is that actually it's quite another sort of myth is what you're doing as an SME when you're talking to a lender is you're trying to give enough ammunition to the person you're speaking to because they're not the decision maker. They've got to present your case.

Adam Cooper (15:13.526)

Mm-hmm. Mm-hmm. Yeah, no, that's...

Steve Cockell (15:33.52)

you know, either got to write a paper or they've to go to a credit committee. So what you're doing is you're giving that individual enough information and argument that will allow them to present your case inside the bank or inside the lending institution. And that means you've got to you've got to go through all the facets of the business, point out what the risks are in the business. Don't don't let them determine where the risks are and

for them to sort of start worrying about it, identify the risks and how they're being handled. It's a persuasion game in that sense,

Adam Cooper (16:09.324)

Yeah, absolutely. Absolutely. No, it makes a lot of sense. is there, something you've talked about before we started recording was about this funding gap and this, you know, the fact that there's been this gap between, I think you said 500,000 and 2 million pounds where, you know, that's opened up and it catches a lot of businesses out.

What's your feeling about why that has opened up? that something that precludes businesses securing funding at that stage? Should they be looking to request either below 500,000 or above 2 million to sort of get around that? What are your thoughts about that?

Steve Cockell (16:52.092)

Yeah, yeah. You're not far wrong. It's a very frustrating part of this market because what you have, you have a whole range. know, I could find you 100 lenders, online lenders.

doing simple credit assessments, providing funding for 50,000 pounds, 100,000 pounds, 250,000 pounds, you get to a point where because of the capacity of the lender, it's outside their sort of risk acceptability. So something above half a million pounds, ordinarily, you'd be going to the banks, the bank that looks after your account, of course. So these newer banks...

They have had a very successful period of trading. And as they sort of get that degree of positive history, what they would tend to do is increase the minimum size that they're willing to lend. Because it's the same amount of work for them to do a small deal as a large deal. So sort of from an economic point of view, they're saying, well, actually, our minimum is now going to be a bit higher. We might say we were doing a minimum.

Adam Cooper (18:02.798)

Hmm.

Steve Cockell (18:11.822)

lend up a million pounds, now we're to do a minimum of two million pounds. Well, they can do whatever they like, but it doesn't help. It doesn't help those of us trying to find funding for a million pounds of debt. And all I'm saying with that funding gap is there are a much smaller pool of lenders that are doing that sort of funding on an unsecured basis. You can, of course, get funding if you've got assets, if you've got property assets, if you've got

Adam Cooper (18:38.104)

Mm-hmm.

Steve Cockell (18:42.06)

Invoices owed, you can get that sort of working capital revolving type funding from an invoice finance facility or indeed, know, plant machinery vehicles, all those sorts of things. You can get funding for assets, but it's where you're trying to get funding for a business and you're, you know, the lenders are looking at this as unsecured. You want to borrow 750,000 pounds. There are a lot less people to go to than if it was 100,000.

or 10 billion. That's the point I'm making. It's really been that area, that sort of funding gap has really been squeezed.

Adam Cooper (19:15.512)

But that's interesting. And I guess that that takes us nicely on to where you come in and where people in roles such as you come in, because obviously there you understand this funding gap. You understand how to navigate this world. A founder and even someone in my role doesn't come across these kind of conversations nearly as often as yourself. But obviously there's lots of people that we do come across in your line of work, brokers.

debt advisors, there's a sort of a range of different support networks. Could you just explain the difference for the audience, you know, of the type of advisors like yourselves and, you know, how you differ from each other and what, you know, what looks right for the founder to choose from given their circumstances?

Steve Cockell (20:05.018)

Yeah, sure. I think as in there are different, I sort of contrast this with the lending institutions actually, because lenders have particular appetite to do certain parts of the business that they know and understand. They've had a good record with them. They sort of like particular sectors or they like particular assets or they like particular funding structures, shall we say. And I think it's...

It's also fair to say if you're acting as an advisor to a company, whether you label yourself as a finance broker or a debt advisor, however you want to sort of describe that, you cannot cover and you cannot, I don't think you can claim to cover the whole of the market from 10,000 pounds to 100 million pounds. You know, that is not, it's not realistic. And particularly when you look at the market, you know, there are mortgage brokers that just do

residential mortgages. That's what they're good at. That's what they know. Not something I do. But there are also in the commercial sort of lending world, there is a definite pool of funders that will do property backed lending. Very bespoke, set up to do property lending, commercial mortgages perhaps, or bridging type funding perhaps.

So that is one pool of lenders. You've got another different pool of lenders who will do invoice finance of the sort I mentioned a moment ago, where they will lend a percentage of the outstanding invoices that a company has raised and provide that funding and have that on a revolving basis. And then there's another different pool of lenders that will do this, what I term from my thinking days, unsecured. To the lender, they are unsecured cashflow type funding where you're lending a certain amount of money

Adam Cooper (21:35.214)

Mm-hmm.

Steve Cockell (21:58.908)

into a company and you are making an assessment that the cash flow that that business can deliver will service that loan over three years, five years, seven years, and there's a margin of safety built in, as I said before, for the lender and the borrower. And that again is a different pool. who are the brokers or debt advisors that know

these different parts. I personally don't claim to be a property expert. you know, for me, I know people who do that, but that is not what I cover. I can absolutely cover invoice finance and medium term funding for businesses. So I think if I was an SME business owner, I would be asking questions before engaging somebody to do this for them as to

what the type of business is that they normally handle. Have they got examples of what they've done recently to match the similar type of situation that the SME business owner has? And really, have they got the right credentials, I guess, in that area that give confidence to the business owner that they are a good person to work with?

Adam Cooper (23:16.002)

Mm.

Adam Cooper (23:23.214)

That's really useful advice. Good tips there. what, you know, again, the founders that I speak to sometimes say to me, if they're looking at raising finance, they're like, well, why do I need a broker or a debt advisor? I'm just giving away a percentage. Can't I have...

conversations with the relevant institutions. There's lots of online panel-based ways of raising finance you referred to before regarding the up to 500k. So what is it that a high quality debt advisor or broker does behind the scenes that the founders don't realize, don't always see, but adds value? Could you just kind of in a few sentences explain that? So you mentioned about property invoice and...

unsecured but what is it that you do on a day-to-day basis to help sort of grease the wheels if you will?

Steve Cockell (24:13.787)

Yeah, I mean, would say at the outset, you're absolutely right to say a business owner can do whatever they like. They can talk to their own bank. They can look up in the phone book and phone books anymore. But you know what I mean? And contact other banks. They can absolutely do that. But frankly, I think what they're getting if they're using an advisor and the sort of work I do is I'm in the market every day. I talk to lenders every day of the week and I have had relationships.

with decision makers in these institutions. You for 10, 20, sometimes 30 years, we've worked together or I've known people for that period of time. Now that does not give me an advantage of saying, I can get you a decision that you couldn't get yourself. But what it does do is it means I can position a proposal, that thing we were talking about earlier in terms of putting a proposal together.

that provides the best possible opportunity. And I can get that proposal in front of the right people to get reliable feedback on what would be deliverable to that company. So I think those are things that it's very difficult to do without an experienced advisor. Where companies don't need advisors really is if they have

a fairly modest requirement for funding and they've got a good bank on, you know, they've got a bank that they know and the bank knows them. I say that isn't, that's less and less, unfortunately less and less in evidence these days. But I mean, if they have and they can just pick up the phone to the bank and say, need an extra £100,000 to tide me over for this trading period, blah, blah, blah.

You know, that may well work for them. Absolutely right. The issues I think are more about where you are needing to go and explore the market, both from a, you know, perhaps going out doing almost like a tender process, which I've done before, to get the best possible pricing and package for businesses or just to sort of explore the market to see where you can get the funding that you need.

Adam Cooper (26:19.074)

Hmm.

Adam Cooper (26:31.115)

Yeah

Steve Cockell (26:31.704)

And I think the people that are doing the advice, the sorts of things I do, not only sort of lead that whole process, then at the back end, they can negotiate the right package with the lender. And as I say, if an SME business owner is doing that for the first time or second time, you know, I've done hundreds of these.

People like me in the market have done hundreds of these, so they know, particularly if you're looking at something like financial governance, it can really trip you up if you've not sort of negotiated the right degree of headroom that allow the businesses to be able to run their business flexibly and at a point where they can really not have to be worrying, I guess, about.

Adam Cooper (27:00.141)

Hmm.

Adam Cooper (27:09.602)

Yeah.

Steve Cockell (27:29.348)

about the whole issue of having the bank on their shoulder. That's the last thing you want. You want something that's going to be work for both borrower and lender, degrees of comfort for both sides.

Adam Cooper (27:43.631)

Absolutely, I think really good advice there and as you say someone with your experience or in a role like yours with that 20-30 years of history I'm sure is able to navigate things far easier than the founder on their own. Just to finish with something that's changing tack slightly, I know when we spoke before we talked about the government growth guarantee scheme and that's something that's been in the news a bit.

recently, could you just give a couple of lines on what that is, what it's designed to do, how you see it being interacted with?

Steve Cockell (28:22.53)

Yeah, I mean, the what this is a name for a government backed scheme. We've had many of these schemes in the past. So this is something that was brought out in April last year. There are 55 lenders have signed up to it. The thing from the lending point of view, if you think about it from the from the bank's point of view, they are able to if something sort of fits in this.

in this up to £2 million of lending, they can get the benefit of a 70 % government guarantee for that debt. So they may have a situation where they have what they would deem a sort of a marginal decision. know, it could be a yes, it could be a no, it's kind of...

you know, knowing how banks are, they probably, probably, if that is on the margins, they probably might well say no. Whereas if they use the government growth guarantee scheme, that no can become a yes, because the banks get the benefit of that guarantee. And

There hasn't been a huge amount of usage of this. It's only been available, as I not free even for a year yet. And sometimes within banks, I keep hearing mixed messages about these things that sometimes in earlier iterations of this sort of guarantee funding, when the banks go to the treasury to get to call on the guarantee, it's not, things are quite difficult to actually get.

Adam Cooper (30:13.069)

Hmm.

Steve Cockell (30:15.514)

to actually get the guarantee paid. I don't know. Different banks are sort of some are paying lip service to it, some are very interested in it, and I'll try to put as many proposals under the umbrella of that scheme as possible. It's absolutely something which is a benefit, and it's something which business owners should be considering in terms of seeing whether their particular funding request could fit that scheme.

Adam Cooper (30:42.574)

Interesting. And is there anything that the lenders need to, sorry, the borrowers, the founders need to say to you or to their banks to sort of trigger, yes, we're interested in sort of putting our proposal through this stream, or is it something that's done automatically? Is there any sort of criteria that the founders need to be aware of before starting their of, their proposals?

Steve Cockell (31:09.146)

I mean, they need to go through the usual process in terms of putting a proposal together, the sorts of things we talked about earlier in this discussion. So there's no particular difference in that sense. It's really whether the bank itself is...

sort of has a mind to say, look, I'd be very happy to provide it within this scheme to get the benefit of that guarantee. It's a different set of documentation. There are certain sort of requirements, let's say up to 2 million pounds, I think I mentioned earlier, repayment terms from one to six years. the business is, to be absolutely clear,

are still liable for the debt, all of the debt, as you would normally. It's just that the lenders have that benefit of the government guarantee.

You know, it's something that the lenders will often bring up themselves, I think, either have with me on a few occasions when they said, look, we're not sure if we really like this, but I think within this growth guarantee scheme, we'd be very happy to provide it through that. I don't think it's... I think it's just something, some additional opportunity for businesses to get the funding they need.

particularly in a part of the market where, as we said, there is a bit of a funding squeeze.

Adam Cooper (32:52.492)

Yeah, no, absolutely. Absolutely. Okay, that's great. And moving on to our final section, Steve, which is our business book bonus section. And this is where we ask our guests to recommend a business book or a podcast or a piece of content that's been particularly influential for you in your career and that you would recommend to the audience. So what would you like to recommend, Steve, to the audience?

Steve Cockell (33:01.081)

You

Steve Cockell (33:18.846)

I'm assuming I'm restricted to one am I here Adam?

Adam Cooper (33:22.038)

No, you can have more than one if you want Steve, that's fine.

Steve Cockell (33:25.229)

I'll tell you why, because I thought when you first, you warned me about this, I thought the book, the business book I really, really loved. And it is, it's a great book to read on the beach. It's not a, it's not a serious book you need to read sort of during working hours, but it's Barbarians at the Gate, which was probably the first most celebrated private equity

through KKR as it was in this, American story, a contested takeover. It's a fantastic read and they made it into, know, so good they made it into a film. That's what I would say. But a slightly more serious answer, if I may, which is the book I have most recently purchased, which I really love, I'm a sucker for this stuff, is, and you may have, I don't know if other guests have already mentioned this one to you, Adam.

It's Atomic Habits by James Clear, which is if I don't know it has been brought up, but I absolutely am obsessed with trying to make sure, you know, the routines and processes and sort of time management, I suppose, are exactly where it needs to be. And he has really come at this as one of those sort of bestsellers now that's not only in all good book shops, it's in all it's in most supermarkets I now see. it's a

Adam Cooper (34:27.458)

Yes, yeah, yeah.

Adam Cooper (34:52.994)

Nice.

Steve Cockell (34:53.237)

It's selling well, I think.

Adam Cooper (34:55.66)

Nice, yeah, excellent. Well, two very good choices there. We've got a classic and a newbie. and as you say, both excellent. So we'll put links to those in the show notes. And before we wrap up, Steve, is there anything that you'd like to say that we haven't covered and where can people find you to find out more about what you're doing, if not?

Steve Cockell (35:18.297)

Oh, you shouldn't have asked that. I there's always a lot more I could say. I think the thing is, I would ask people if they want to find out more. I put a number of insights up onto my website, is obikabusinessfunding.com. And I also post on LinkedIn every day, every weekday, I suppose I would say. So there's always interesting sort of...

Adam Cooper (35:21.464)

Hahaha

Steve Cockell (35:47.715)

Commentary from me, I guess, on where the market is, what some issues are that are arising in the market. If people want to take a look at that, that would be great. Happy to connect with anybody on LinkedIn and obviously provide any sort of thoughts and guidance for any of your listeners as required.

Adam Cooper (36:08.298)

Excellent. Well, thank you very much. We'll look forward to finding out more from you on LinkedIn and abecobusinessfunding.com. Thank you very much for joining me on the Fractional CFO show today. Really appreciate your insight, your perspective and your time. Thank you.

Steve Cockell (36:23.693)

Thank you, Adam.