The
This is a significant step forward both for deposit and borrower positions, however, undoubtedly there is still likely to be an impact on access and movement of funds, permitted bank accounts and future access to undrawn previously available funding. With the challenges ahead, what does this actually mean in practical terms for SVB
Is it business as usual with our venture debt facility and accounts?
All indications suggest start-up borrowers will have continued access to their venture debt loan and deposit accounts with transactions proceeding as usual but in practical terms it will be important to check movement on and accessibility to these accounts.
The BoE statement indicates that customers can continue to contact SVB
What are the consequences on our venture debt facility if we transferred funds last week?
Whilst it is understandable that protective measures were taken by many companies in recent days to provide short-term funding to businesses, including moving funds out of SVB
Venture debt facilities generally contain strict terms regarding third party bank accounts. If this is the case with regard to your facility with SVB
If funds were transferred to a third party bank account which is already a 'permitted account' under the venture debt facility, you may not need to take any immediate action, but you should check if transfers to this account are restricted or subject to any balance cap and move funds back if necessary.
If a new third party bank account was opened and funds were transferred to such account on a non- permitted or no consent basis (which we assume will be the case for most borrowers placed in such a unique and time critical situation), these actions would technically be breaches by the borrower of the terms of the venture debt facility agreement.
Whilst we do not have visibility on how breaches will be treated in these exceptional circumstances, it is important to highlight the following:
- any breach of the venture debt facility agreement could be treated as an event of default
- a waiver could be sought but is not guaranteed
- consent could be obtained retrospectively
-
in relation to opening the new account, but bear in mind any consent will be at SVB
UK's discretion and may be conditional on items requiring immediate action, for example transferring funds back to a secured SVBUK account and entering into documents to bring the new account into the security net, agreeing to cash sweep obligations tec - some events of default can be remedied but most are within lender discretion/subject to specific grace periods
- an event of default entitles the lender to accelerate the loan, demand immediate repayment and if necessary, enforce the security to recover the repayment obligations
We can assist with navigating any potential breaches here and help you decide what is the best course of action in terms of timeline and communications with SVB
What action can I take to protect our commercial position against bank account exclusivity going forwards?
With such a huge impact on so many businesses, it is likely that many borrowers will want to push back on the current position in their venture debt facility on bank account exclusivity and cumbersome restrictions on opening new accounts. This may create leverage for borrowers to seek to renegotiate covenants with SVB
Consider approaching SVB
Paying back the loan
Consider current loan exposure and sources/options of available cash to the business to underwrite this debt. Could you pay the loan back if the facility is cancelled/declared repayable early?
What do we need to do about recent payments (in or out) on our SVB
If payments to suppliers and other third parties were to be made through a SVB
Similarly for incoming payments due, this process will also ensure that any delayed payments owing to the company are recovered as soon as possible to boost cashflow.
Will we still be able to draw down future undrawn but available tranches of the venture debt loan?
Although we don't have a confirmed position from
Do we still need to think about emergency/short term funding now
We think it is important to remain vigilant and prepared in terms of short-term funding requirements and monthly burn rate.
It is likely that you have done so already but we would still recommend speaking to your investors and shareholders to discuss short term bridge funding/emergency funding round/cash injection/convertible funding.
However, bear in mind that some or all of such funding may be restricted or subject to consent and subordination requirements under the terms of the venture debt facility.
We can provide advice on and assist with the preparation of all documents needed for any short term loan, convertible loan or bridge finance arrangements.
What should we be thinking about and actioning from an insolvency and corporate governance perspective?
Although the sale announcement is immensely helpful to SVB
From a Corporate governance perspective, directors are unlikely to face personal liability where short term liquidity crisis has been caused by unforeseeable external shock such as this week's events.
However, during times of financial liquidity turbulence, a board and its directors should always be careful to balance their duties to promote the success of the company on the one hand, with any duties to creditors on the other. In certain circumstances, trading company which cannot pay its debts as they fall due may also give rise to personal liability for directors, for example for 'wrongful trading'.
Last year, we summarised the
You should also take care to keep detailed and accurate records of their meetings and decision making as events unfold.
Should we consider refinancing our venture debt?
Shop around for replacement debt facilities for the most competitive terms as lenders compete to win new business but also capitalise on an increased demand for venture debt facilities when negotiating terms. Lots of venture debt providers are already offering their services including, short- term financing or venture debt refinancing options.
Be prepared for new lender/investor due diligence by ensuring you have up to date and organised information on your business and accounting analysis including monthly burn rate, key customers and forecasts.
Bear in mind there will be prepayment fees/penalties due on the existing venture debt facility on any refinancing and some may only allow prepayment in full so any new loan will need to cover the existing exposure.
Consider approaching other lenders for additional funding such as working capital, trade/revenue/invoice financing facilities, which are being more widely available to early stage revenue based businesses. However, note that if such facilities are to operate alongside your venture debt facility, you will need SVB
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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