Raising Finance Case Study
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Securing lending
David was the bursar of an independent secondary school with a major problem looming. Almost three years previously, the school had taken over a failing junior school. Whilst the management team had done a superb job in turning around the trading performance, managing to enforce significant increases in fees and pupil numbers, under the terms of the acquisition the school had to be relocated to allow the landlord to take back the land. After some time looking for suitable existing buildings to acquire without success, he was reconciled to a new build next to the secondary school. Since this was a listed building in a green belt area, the planners were insisting on an expensive specification that looked likely to cost around ?2.5m and had already rejected his first application. The build would take about a year, he only had ?0.5m in spare cash and the prospect of explaining himself to over 140 sets of angry parents that they did not have a school any more was not one that he relished.
We quickly reviewed the position and decided that it would be appropriate for the school, a charity, to borrow the balance of the cost price given its strong asset position, an improving track record and underlying business case. The problem was that the amount of the borrowing was significant and the repayments much more than historical accounts suggested the school could bear. We prepared a professional business plan for lenders that showed with suitable assumptions about increasing fees and pupil numbers together with taking into account sensitivities on interest rates, this was a bankable proposition. The bank agreed, the money was lent, the building was built and is now operating successfully. (It did sadly open a few weeks late but that was down to the planning authority and dealing with these fortunately falls outside our normal services!)
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