Four finance trends transforming business lending
It’s no secret that it’s becoming increasingly tough for small businesses to raise capital from traditional lending routes. But there are other ways for business to borrow.
Colin Swanston, Managing Director of the Transport Division of Close Brothers Asset Finance, discusses a range of alternative finance options and ‘runs the rule’ over each of them.
According to the most recent Close Brothers Business Barometer survey, 66% of Scottish businesses are unaware of the alternatives to traditional funding when it comes to funding outside of traditional banking; nationally, the figure isn’t much better, coming in at 59%.
These figures are perhaps surprising given the amount of press focus on the likes of crowd sourcing; peer-to-peer lending, and challenger banks.
Our guide to alternative finance options will help you understand different ways to raise capital for your business.
1. Asset finance
Asset finance allows you to take advantage of your existing equipment to fund 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, including:
- Hire Purchase enables you to acquire an asset while paying for it in instalments over an agreed timescale. At the end of the term, you have the option to purchase the asset outright.
- Refinancing is a quick way to access the value of assets on your existing balance sheet and redeploy that value elsewhere within your business.
- Sale and HP Back works by the funder purchasing the asset and financing it back to a business. This option applies whether you already own the asset or are using it under a finance deal with another provider.
- Finance Lease lets you use the equipment you need without having to buy it outright. You pay the funder rent for the full use of it.
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 releases funds from your unpaid invoices to help manage cash flow, while you maintain responsibility for collection of payments.
- Factoring releases funds from your unpaid invoices, while a credit management team looks after collection of payments on your behalf.
3. Financial technology services
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:
- Acquisition: work with you to source the technology – from hardware to software – that is appropriate for your business.
- Funding: select the right funding option or options.
- Management: help you with, for instance, the installation of new and removal of old technology. They should also be able to help you track your assets if you have a mobile workforce.
- Recovery: take care of the disposal of technology in an environmentally responsible way and ensure your data is secure at all times.
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
Over recent years Close Brothers Asset Finance’s Scotland team has grown and prospered, bucking the trend of financial services organisations in the country, many of which have undergone significant change, ranging from restructures to downsizing.
The latest addition to our Glasgow-based team is our Corporate team, made up of three industry specialists who have been brought on board to support SME growth across Scotland and to further enhance our corporate presence.
Between them, Gordon MacGregor, Suzanne Smith, and Gary Kidd have over six decades of asset finance experience, and already they have been making a significant impact. In effect, they are a dedicated relationship management team who work hard to ensure they fully understand a business’s aspirations and work closely with customers to help them achieve their goals., which is a very strong proposition.
About the author
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.
About the company
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 approach is prudent and considered. We adopt a cautious approach to writing loans which, together with our prudent management of capital funding, ensures we can continue to lend in all market conditions.
We value our customers over everything else. We focus on developing long-term relationships, to fully understand our customers and their intricate business operations in order to support long term growth.
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.