This week sees our second instalment in City A.M's ‘Building Britain’s Businesses’ feature where we discuss what it takes for small business owners to enable continued business growth, and how a business loan or asset finance agreement could help businesses to realise success on a broader scale.
For many businesses, securing finance has become part and parcel of growing a company. Recent research we conducted in partnership with Opinion Matters shows firms across the UK now borrow an average of £75,408 over a typical 12-month period.
But unlike large businesses, which often have the capacity to plan several years ahead, when smaller companies look for finance, it is usually more reactive and in response to an event or a specific requirement. That’s in the nature of these firms; their owners and managers tend to be more involved in running the business than thinking about finance, so they will inevitably have less time to create cash flow projections or analyse their long-term equipment needs.
As such, support from finance providers who understand their business is crucial. When smaller businesses come to us, for example, they tend to be looking for asset finance arrangements that will allow them to buy new equipment, from computers and machinery to vehicles. More often than not, that conversation prompts the company to realise that they have access to other types of finances – from loans to fund tax bills to general business development loans – that will allow them to meet their growth ambitions.
This lack of familiarity with the options out there is partly a result of the changing nature of smaller companies’ relationship with their banks. In many cases, banks will be supporting these companies’ growth – but only to an extent. They may have an overdraft facility with their bank, but with a limit below that which allows them to take on new staff. Their bank might offer asset finance, but not for smaller purchases. Given the capital requirements placed on traditional lenders since the financial crisis, they have become more selective in terms of what they will lend and to whom, with many smaller companies consequently still unware that there are alternative providers out there who will help them finance their growth when the banks are unable to assist.
One positive development that is tackling the problem head-on is the Bank Referral Scheme. Announced in 2014, it requires banks to refer businesses that do not meet their lending criteria to platforms, which allow alternative lenders access to provide a solution. It is expected to be up and running later this year. Accountants and solicitors – professional partners that work with SMEs – are also increasingly educating their clients on the diversity of options they have. To encourage this education, we have developed introduce, a client referral programme for professional firms which provide their clients with access to a wide range of alternative funding options.
When a business comes to us, we try to facilitate this as far as possible by providing each client with an account manager. Their job is to understand the business and the dynamics of when and how finance could be used to support their business development. If we have information about when a large tax payment is due from the firm, for example, we might suggest that they consider a financing arrangement to smooth the cash flow, while also helping to ease the burden of these often-considerable costs.
That’s our job as a lender: let the SME get on with what they’re good at, and we should be there to give them full awareness of their options. Securing finance doesn’t need to be complex.
You can also view the 'Building Britian's Business', profiling London-based hybrid bus company, Vantage Power here.
Our next instalment in ‘Building Britain’s Businesses’ will be Thursday 22nd September in both publication and online.
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