Financial services: do you know your small business funding options?
Alternative financial lending choices must be promoted to small businesses, according to research from Close Brothers Asset Finance.
The Business Barometer survey found that 59% of UK businesses are unaware that funding can come from a large number of alternative lenders, despite growth and diversification in the lending market.
The survey shows that 39% of SMEs reach out to traditional high-street banks to raise capital, in spite of continuing hesitancy from from banks to lend to small businesses. In 2016 business bank overdrafts decreased by 2%, and net loans from the largest UK banks fell significantly, according to the latest figures issues by the Bank of England.
Whilst the effects of political upheaval and the implications of Brexit may lie at the heart of the problem, with cash flow at the heart of SME growth more needs to be done to promote how start-ups and SMEs can tap into funding.
Colin Swanston, Managing Director of the Transport Division of Close Brothers Asset Finance, gives insights and practical advice on the alternative finance lending process.
1. Asset finance
Asset finance allows you to take advantage of your existing assets to secure funding on everything from paying a deposit on new equipment to unlocking working capital to ease cash flow.
There are a number of products under the banner of asset finance, from hire purchase to refinancing, all ultimately allowing you to breakdown large payments and making investments much more affordable. In 2016 £9.5bn was lent to small businesses via asset based finance, an increase of 3% from previous years.
2. Invoice finance
Invoice finance allows you to unlock up to 90% of the value of your unpaid invoices the moment they are raised, removing the concerns many small businesses have about getting paid on time, which in turns keeps the cashflow healthy. Typical products include: discounting, which releases funds from your unpaid invoices to help manage cash flow, while you maintain responsibility for collection of payments; and factoring, which releases funds from your unpaid invoices, while a credit management team looks after collection of payments on your behalf.
Almost all businesses rely on technology to some extent and the disruptive nature of FinTech is a welcome challenge to traditional lending and financial services, and is forcing conventional financial institutions to evolve.
However, staying in touch with developments and developing a tech-savvy culture can be both time consuming and expensive. In line with asset finance, the funding options are broadly similar, but because of the nature of technology, the process is different and reputable funder will help you along a four-step process from acquisition, through funding, management, and recovery.
4. Peer-to-peer lending
Sometimes abbreviated P2P lending, is the practice of lending money to individuals or businesses through online services that match lenders directly with borrowers. This makes up a very small percentage of the overall market, and is typically for small amounts.
Find out about alternative finance options
Meet the industry specialists
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 is a leading UK merchant banking group providing lending, deposit taking, wealth management services and securities trading. Established in 1878, Close Brothers Group plc employ 2,900 people, principally in the UK, are listed on the London Stock Exchange and are a member of the FTSE 250. Our activities are straightforward. We remain focused on markets and services we know and understand. Our businesses have remained local. Our knowledge and experience allows us to provide an informed and valuable service whilst operating via a national network, allowing us to lend where others do not.
This blog is one of a series of articles from our commercial partners.
The views expressed are those of the author and not necessarily those of ICAS.