11.10.2015

Funding enables distributor to seize opportunity

Turning a business opportunity into a profitable revenue stream takes rather more than a well-drafted business plan – although that must always be the starting point. There is a long list of contributory factors in the ‘mix’ if the good idea is to gain traction and become a financial success rather than another also-ran that stumbles into oblivion.

Entrepreneurs should never stop checking that they are ticking the right boxes as they move the business forward. Is there a continuing demand for the product or service? Does the team have the experience and technical know-how to resolve issues as they inevitably arise? And, in the case of a new product, does it always work in the way that it claims ‘on the tin’?

When a UK entrepreneur with a strong background in health and safety encountered a compact and technically impressive fire extinguisher at a trade show, he had the industry knowledge to realise that there was a gap in the British market for such a device. Fortunately, an exclusive UK distributorship for the product had become available. Given the small size of the extinguisher, its pricing and the extensive range of fires which its active ingredients can address, the potential demand in the UK was immediately apparent, as was the route to market.

With several hundred thousand of the extinguishers sold across Europe since the product was developed, there could be few questions about its ability to do the job for which it was designed. So, no problems there.

How would purchase of stock from overseas manufacturer be funded?

There was the question of funding the project, however. Product supplies for the British market had to be purchased from the manufacturer in Europe and paid for at the time of shipment. There were other costs: even the best ideas need promoting, so there was marketing to be factored in, particularly as the owners of the new business had plans for reaching a retail audience on the internet.

The primary target, however, remains house builders and companies fitting out properties. High profile players in this field had recognised the benefits of installing the device in the kitchens they were supplying in new homes.

There was a clear case for the project to be funded, but the model did not resonate with traditional institutional lenders. A professional advisor to the new distribution company had seen the approach that Trade & Export Finance (TAEFL) was taking in helping SMEs to finance orders; many of which involved importing stock or materials.

TAEFL and its specialist financial arm UK EXIM had developed a portfolio of alternative finance solutions, including funding the purchase of stock on behalf of a client and releasing it against firm orders from financially secure customers of the company. With the commercial risk assessed and contained in this way, the TAEFL companies were able to offer the new fire extinguisher business an initial facility of £50,000. Security for the funding was taken through a debenture on the company’s assets supported by a director’s guarantee.

Rarely is there a business which so neatly meets the criteria for success. The TAEFL group will be able to claim that its contribution has been instrumental in that success as the UK distributor develops.

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