Financial services firm reveals solutions for startups and SMEs
Colin Swanston, Managing Director at Close Brothers Asset Finance, talks to Lesley Stewart about the daunting task of getting a new business off the ground, especially when you're a growing SME or startup - and how to overcome the challenges.
Since the global financial crisis the funding situation for start-ups and SMEs has changed irrevocably. In this new financial landscape, how do growing SMEs (or scaleups) secure the right type of funding for their business plans? Is the traditional high-street banking route really the only option?
The answer is no, says Colin, alternative funding sources are available and there to be used - if you know where to look.
Alternative funding options can be immensely beneficial, especially where small businesses and start-ups struggle to access finance from traditional lending routes. Asset finance is one such alternative option, often useful for budding entrepreneurs wanting to set-up their own company.
"The Finance and Leasing Association recently reported that its members provided £30bn of new finance to UK private and public sector businesses, and almost 32% of UK investment was in machinery, equipment and software," says Colin, discussing the importance of asset based lending to the SME market.
"Despite these impressive numbers, many small business owners are still unaware of the benefits that a well-structured asset finance facility can bring to their business. The route to finance is still, for many, through traditional channels," Colin explains.
Asset finance - a fast growing finance option
Colin believes that access to finance is a common challenge for SMEs who can see the potential to grow their business but don’t have enough working capital to pursue the opportunities.
"A key benefit of asset finance is that it offers an effective solution to this problem by spreading the cost of an asset over its useful working life. A well-structured hire purchase or leasing facility gives a business access to the vehicles, machinery or technology solutions they need without compromising cash flow."
"Repayments can be structured to take account of seasonal cash flow fluctuations", says Colin, "and hire purchase charges, while leasing payments can be offset against pre-tax profits. Additionally, there are no restrictions in the choice of supplier, and asset finance can be used for both new and second hand assets."
Why asset finance?
So what's the main appeal? The answer could lie in simpler and faster release of funds.
Looking more closely at the various finance products, Sale and HP back is a quick way to release cash against existing assets. Colin said: "The funds released can be used to expand a business, settle outstanding bills or to fund a deposit on a new piece of equipment or even premises.
"A business has uninterrupted use of the asset and repayments are matched with projected income stream. Sale and HP back can be used to release cash regardless of whether an asset is already owned or is on finance with a different lender."
The impact for a scaleup
Colin believes that in today’s financial market it may not always be straightforward to secure mainstream bank funding to acquire a new business. "However, if the target company has a good fixed asset base consisting of vehicles, plant or machinery it may be possible to re-finance the assets of the target company to fund the acquisition," he explains.
"Obviously, timing is of great importance but with both vendor and purchaser and their respective legal advisers working together, it can be a workable alternative where traditional bank funding may not be available."
Discover how Close Brothers Asset Finance can help you with funding
About Close Brothers Asset Finance
Colin Swanston is the Managing Director of the Transport Division of Close Brothers Asset Finance based in Scotland. For over 30 years Colin has specialised in providing alternative asset funding to the Scottish SME Marketplace. Close Brothers Asset Finance are the official ICAS Partner for the Insolvency and Restructuring Community, and have sponsored the ICAS Insolvency and Restructuring Conference for the past four years. Find out more about Close Brothers Asset Finance.
This blog is one of a series of articles from our commercial partners.
The views expressed are those of the commercial partner and not necessarily those of ICAS.