A recent report from the British Business Bank has raised cause for concern in the commercial finance sector.
The bank’s fifth Small Business Finance Markets report has been produced to provide a comprehensive and impartial assessment of finance markets for SMEs at a time of great significance for the UK economy.
Its conclusion starkly warns: “Of most concern for the economic outlook, over 7 in 10 firms say they would rather forgo growth than take on external finance”.
“Ensuring that those businesses that have growth potential and aspiration can access the finance they need is important for long-term UK productivity and competitiveness. The evidence suggests that smaller businesses with growth aspirations are more likely to achieve those growth plans if they make use of external finance”.
As commercial finance brokers, the figures came as a bit of a shock, because we see those SMEs who DO take that leap of faith. So far this year we’ve worked with 450 businesses from the consultation stage through to helping them complete a finance application. But, of course, we don’t usually get to hear about the ones who baulk at the idea.
The reluctance of SMEs to use finance is attributed to “attitudes rather than circumstances” and these attitudes are “becoming entrenched”. To combat this, says the British Business Bank: “Greater understanding of the potential benefits of using finance is required, combined with more awareness of the increasingly diverse range of products and providers that exist in the small business finance market.”
Our aim, then, must be to address the specific issues identified as underpinning those fears. These are:
Fear of rejection
The Business Bank advises SMEs to “seek high quality trusted advice” – and, indeed, if you work with a finance broker your application is extremely unlikely to be turned down.
A broker has access to a much broader range of options than just a traditional loan from a High Street Bank. We get to know your business and individual circumstances in great depth before submitting anything to a lender, enabling us to confidently assess a client’s eligibility for any particular package.
Many SMEs are afraid of taking out finance then being unable to meet the repayments.
Your broker will help you to plan your funding strategically and align this with your business growth aspirations, assessing your incomings and outgoings to find a package that is most suitable for you. We are on your side and would make sure that no lender offers you a package that is beyond your means.
You might use asset finance to purchase new equipment needed for growth. Payments are made over a fixed period, making budget planning more manageable, and, if there was any danger of defaulting, you would only lose the business asset and wouldn’t be personally liable with your home or property at risk.
Options like invoice finance and VAT loans will improve cashflow, easing any likelihood of hitting a sticky patch.
Loss of control.
Working closely with a broker keeps you in control throughout the process. Your relationship manager will talk everything through with you and explain the details step by step. There’s no obligation to proceed with an application and you can pull out at any stage, right up to signing on the dotted line.
The fact is, if you find the right package, accessing external finance will give you MORE control over your business funds.
For instance, you can use invoice finance to access money due to you before it comes in and a VAT loan enables you to pay tax due at a time to suit you, rather than in one big lump sum.
Some lenders will allow seasonal payments for asset finance, at a time to suit your particular business. For example, an ice cream company has a bigger income in summer and a lender will recognise this, allowing higher repayments during peak times and lower rates during the troughs.
We hope that this information goes some way to allaying any “fear of finance” that business owners may have and that more SMEs will take up the growth opportunities that the British Business Bank has identified as being so important to the UK economy.