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The core question: where does the revenue sit?
Many group structures separate the trading activity — which generates revenue — from the holding company, which owns shares in the trading subsidiary but may have little or no revenue of its own. A lender considering a facility to the holding company will want to understand how cash flows up from the trading entity: as dividends, management charges, or inter-company loans.
If the holding company's only income is dividends from a subsidiary, those dividends are at the discretion of the subsidiary's board and are not guaranteed. Lenders will factor this into their serviceability assessment.
Cross-guarantees and group-level security
In practice, lenders to holding companies will often require a cross-guarantee from the principal trading subsidiaries, or will take security over the shares in those subsidiaries. This gives the lender recourse to the underlying trading assets and cash flows even though the borrowing entity is the holding company.
Directors should ensure they understand the implications of any cross-guarantee before agreeing to one, as it exposes the subsidiary to obligations it did not independently incur.
Consolidated versus entity-level accounts
Lenders may request both consolidated group accounts — showing the combined financial position — and standalone holding company accounts. The consolidated position tells the lender how the group as a whole is performing; the standalone accounts reveal what assets and liabilities sit at the borrowing entity itself.
- Consolidated group accounts for the past two years
- Standalone holding company accounts
- Inter-company loan schedules and current balances
- Group structure chart showing ownership percentages
Newly formed holding companies
Where a holding company has been incorporated recently — for example, as part of a reorganisation — there will be no standalone trading history at that entity. Lenders will rely heavily on the trading subsidiary's historical performance and will typically require the subsidiary to be a co-borrower or guarantor.
Frequently asked questions
Can the subsidiary borrow directly rather than the holding company?
Yes, and in many structures this is simpler. The subsidiary has the trading history, the revenue, and the assets. A lender may prefer to advance to the entity with the clearest repayment capacity and accept a charge over assets at that level.
Does the holding company need its own bank account and accounts?
For any serious commercial lending, yes. A holding company with no separate bank account, no filed accounts, and no documented inter-company transactions will be very difficult to underwrite as a standalone borrower.
Funding for UK limited companies
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