Restructuring finance for a family-owned cattery and kennels business

During the lifetime of a family business, it is not uncommon for the business to require restructuring. There are a multitude of reasons for this, such as changes in the family dynamic, succession, market changes or business growth. Whatever the reason, restructuring finance is often required to enable or soften the journey.

A recent case involving restructuring finance is a good example of where this type of loan can be highly effective in allowing family businesses to grow and prosper.

What was the situation of the borrowers?

We were contacted by a broker who had a case that was on the edge of what we do. The business had a limited agricultural context, but there was land attached, so we decided to meet with the borrowers to find out more.

The borrowers were a family who ran a cattery and kennels business in the South East. The driving force was a mother-and-son team who managed the business day-to-day while the father worked off-site in construction. The family had owned the business for 15 years, and prior to that, the son had worked for the previous owners for 3 years. Therefore, both the mother and son had huge amounts of experience running the business successfully.

The family had reinvested most of the profits into the business to improve the operations and service provided to customers. However, many of these improvements were long-term focused, which meant their return on investment was not clearly seen in the finances of the business. Due to this, they required some restructuring finance to further push the business forward and improve the cash flow in the short term.

The family had made an effort to create a very high-quality offering for their customers. The dog kennels were fully heated, and they provided different styles of kennels such as large family-suite kennels for multiple dogs, or specific kennels for smaller dogs and separate spaces for nervous dogs, and also a separate kennel building for dogs that were older or maybe unwell and needed to be in a quiet, quarantined area.  The cattery was also fully heated and provided large chalet suites for individual cats or for multiple cats that wished to stay together. They had an outside run and bedroom if they wished to stay inside.

Why was UK Agricultural Finance chosen to provide restructuring finance?

The borrowers had tried to approach their bank for a loan, but the bank had been dismissive and unsupportive. Meanwhile, due to the reinvestments and the specialised nature of their business, they were unable to raise finance from traditional high-street lenders.

However, we were willing to consider their case following our on-site visit. When we conducted the visit, we identified the high-quality nature of the business. We were impressed by the standard of the premises, the multiple styles of kennel, as well as the formal qualifications the family had obtained to support the business. It was clear that the family wanted to ensure the cattery and kennels often a high level of service to their customers and offered customers peace of mind that their animals would be safe and well cared for by experienced staff.

They also had a good online booking system and additional income from the sale of pet accessories. This demonstrated their business acumen and understanding of the market.

Overall, we found a strong business with reliable revenue and that came almost entirely from repeat customers. This said a lot about their customer services and how hard the family worked to provide a high-quality service to their customers.

At the time the loan was made, they were fully booked for the following 10 months. This was not uncommon for the business and showed that they would have a strong, reliable revenue to support any loan repayments.

We recognised the good business potential for growth, but also understood that if it went wrong, the site would need to be sold as a business. The area was relatively wealthy, and the site was well located for anyone travelling to a London airport or popular UK holiday destination. This supported the family’s decision to position their business as a high-quality option for pet owners.

What type of restructuring loan were we able to offer?

The family-owned property, which included a well-presented 3-bed property with 3 acres of land and cattery and kennels, was suitable for us to take as security. The family also owned three buy-to-let properties that were not in our security. This provided us with a loan-to-value of 55% on a £650,000 loan, which is well within our 65% limit.

Based on the revenue and cash flow from the business, the most appropriate loan was a term loan, which we offered over 84 months. This way the family could decide to either complete the full loan term with us or refinance to the high street at a later stage if suitable.

As it transpired, the business continued to prosper and the restructure was successful, so once the borrowers had three years’ worth of good accounts, they were able to repay the loan early with a new loan from a high street lender at a lower interest rate.

If you have a borrower looking for restructuring finance, please come and speak to us. You may not think of the case as agricultural, but you would be surprised how often there is an agricultural connection. We are able to offer both bridge and term loans for restructuring finance to suit your client.