The facts around why the S&P500 is up more than 17% year-to-date have been widely written up, as well as the explanation surrounding the FTSE 250’s decline of 1.37% in the same period. Much comes down to constituents - how much of that S&P leadership is down to those businesses exposed to the AI trends, as well as the macro themes impacting markets. The core discussion at present is inflation and which central banks are dealing with it well through their monetary policy decisions. Currently, most economies are still growing despite higher interest rates but for how long?
“the most anticipated recession on record”
The downturn in growth has not been as severe as many anticipated - the recession has been called ‘the most anticipated recession on record’ which led to companies taking early precautionary stances to protect future earnings. How does this all impact us at Finstock Capital? Well, first and foremost on pricing. We provide a service which is directly linked to the national cost of borrowing - any interest rate change the Bank of England makes will have secondary and tertiary impacts to the UK landscape - to the housing market and the ability of consumer’s to service their debt. This has further repercussions on early stage businesses - the UK banking landscape has changed significantly over the past decade and it has become harder for small and medium sized businesses to access debt finance. The UK banks want to minimise risks and therefore focus on their core products. This led to the proliferation of challenger banks who wanted to step into this previously well serviced area. That was fantastic when interest rates were near 0%, however, looking down now when BOE rates are at 5.25%, there are more questions as to whether these debts can be properly serviced. This is where we fit in.
“The change in market dynamics has led to many areas being totally unfulfilled”
We are not a bank. Clearly. We don’t issue debt ourselves, we don’t take deposits and we certainly don’t sponsor grand sporting events (much to some people’s frustrations about tickets to the Ashes). However, we look at every transaction on its merits and test the cash flows of the business in bespoke ways. We also look at catalysts for specific repayments. Now yes, we may have started by just providing R&D loans to early stage businesses, but today we look a full suite of opportunities from acquisition finance, refinance transactions, video game development finance and venture debt. In fact, we have found that there are so many players leaving the market as interest rates continue to creep up that there are opportunities within all areas of the market. Some incumbent loan providers are leaving and there are few options as to where to refinance.
Now, as much as we would like it, we don’t have a bottomless pit of capital ourselves, but we do work with 5 family offices so we can pool capital together. As they say, everything has a price, and we work on a bottom up approach to pricing - looking at the total addition from the BOE price using our risk adjusted levers. It is certainly not for everyone and we can guarantee that we can't match those quotes from high street lenders… but, as we look at the global picture, we see plenty of possibilities and opportunities. We are happy to talk through our solution and explain how we have helped:
A window installation business acquire a similar business to expand its regional coverage
A game developer bring a video game to market when funds were restricted from publishers
An events business refinance its debt when it was forced to do so at short notice
A film producer gets its team focussed on film 2 rather than wait for the completion of film 1
All loans were between £200k and £1m and unavailable from traditional lenders. Want to talk it through? Then please arrange a time.
None of this post was written by ChatCPT, suprisingly.