News

ThinCats, the leading fintech lender to mid-sized SMEs, has today published new research highlighting a growing lending divide as younger, modern businesses move away from traditional lenders towards alternative finance providers.

For businesses less than ten years old, 32% call on their bank as the lender of first choice compared to seven-in-ten (71%) businesses over 35-years old. The younger businesses were also more likely to pick an alternative finance platform with more than one-in-five (23%) compared to 4% of the oldest SMEs.

Likewise, in businesses where decision makers were aged under 35, two-thirds (65%) said a traditional bank was not their first port of call for funding. This is in contrast to businesses with decision makers aged 55 and over, where it was just under one-third (30%). For these groups (under 35 decision makers) 22% said they would choose an alternative finance platform, while only 6% (over 55) said they would consider the option.

Sectors such as IT, telecoms and marketing, which are traditionally knowledge or service-based are those leading the way in moving towards alternative finance providers.

Damon Walford, Chief Development Officer, ThinCats, “The SME lending ecosystem is complicated. Changes in the economy, technology and how people work mean that traditional lending models are not meeting the needs of the modern economy by excluding thousands of SMEs from potential funding. Thankfully, it’s encouraging to see that smart minded entrepreneurs are switching to the growing number of non-bank lending alternatives.”

Traditionally, high-street bank lending focuses on asset-backed financing that requires SMEs to provide a physical asset (such as equipment or property) as collateral for a bank loan. Yet, for thousands of service-based companies with few tangible assets, traditional banking credit models often overlook the wider value of a business including the cash being generated.

The research, which surveyed 512 UK SMEs with between 10 and 249 employees, also shows 30% of SMEs who were rejected by their first-choice lender, stopped searching for external funding altogether. This suggests that many businesses, of whom 55% said high street banks were the first lender approached, are potentially giving up when there are suitable alternatives available.

Positively, appetite for lending remains high with more than a quarter of businesses (27%) saying they applied for funding within the last year.

Walford added, “Cashflow lending is a solution for thousands of SMEs, where lenders look at the underlying cash flow generated by the business. For businesses who are service-focused like IT, telecoms and marketing companies it works perfectly. We’ve found that many of these businesses are also more willing to share their accounting data, opening them up to financial providers beyond their banks.

“I hope this message gets out to more SMEs and would encourage them to plug into the growing network of accountants and commercial finance advisers now advising on alternative finance options. It’s critical that UK entrepreneurs can access modern funding solutions for a modern economy.”

BY PETER SMYTH

Source: London Loves Business

If you run an SME, you probably are familiar with these all too well. But it’s easier to overcome these finance hurdles than you think!

First of all, let us begin by admitting and acknowledging the harsh reality. The UK economy has been through a constant grind of speculation, debate and uncertainty over the past few years, all thanks to Brexit. Without commenting on the issue, we would just like to mention that not all SMEs are happy about the way things have been unfolding. Nearly 40% of UK SMEs think that Brexit – if and when it actually happens – will leave them worse off in terms of financing and sales. That’s a very serious trend.

However, that’s only a part of the finance riddle. There are quite a few non-seasonal hurdles that SMEs have to face while applying for and getting commercial finance. Here are our picks (and some advice from our experts on how you can easily overcome them).

1. The Personal Credit Vs Commercial Finance Conundrum

This is by far the most common confusion we’ve seen SMEs struggle with. Much of this has to do with the fact that most SMEs are built ground-up without any solid plan for expansion. This, however understandable, is not the right approach. When you start a business, it’s advisable to treat it like a business. Sure, you can use your personal credit cards or even mortgage your home – but you need to know where to draw the line.

Personal loans tend to reduce your creditworthiness, making things difficult for when you want to get a business loan. The best way to overcome this conundrum is to separate personal and business finances as strictly as you can. Your personal creditworthiness should be a credit to your business – not a burden.

2. Bad Credit

This is the most obvious hurdle. If you have bad credit, you’re going to struggle to get a good deal (or any deal, for that matter). It’s important to know what impacts your credit in addition to the usual do’s and don’ts.

We’d like to note here that having bad credit doesn’t spell the end of the road by any stretch of imagination. We, at Commercial Finance Network, regularly broker bad credit loans for many otherwise successful SMEs. You can read more about our adverse credit mortgage services here.

3. No Credit History

Not many SMEs take business credit seriously, thanks mainly to the fact that most operate as sole traders. Quite naturally, it’s not very common for SMEs in the UK to have business credit history.

The easiest way to establish business credit history (you’ll need it when you want to apply for high-end commercial finance products) is to register your business and start trading regularly. Most companies, just by trading actively, are able to establish various credit tracks that help towards their credit history. To speed up the process, you can also use easy-to-access finance products like credit lines, business credit cards, overdrafts and so forth. Short-term finance products like bridging loans and invoice finance can also be very helpful in building a good credit score.

4. Multiple Applications

As is the case with personal credit, your chances of getting approved for a commercial finance product may get severely hampered by multiple applications. If you overestimate your creditworthiness and have half a dozen applications turned down, it’s almost always going to leave a dent in your business credit history.

This, however, is easily avoidable. If you want to directly work with lenders, make sure you are familiar with the lender’s expertise, expectations and track record. If not, you can send your applications through a reputed whole of market broker like Commercial Finance Network to improve your chances of getting an affordable and customised finance deal.

5. Going After Incompatible/Unsuitable Products

Another easy to avoid problem.

If you’re in need of commercial finance, make sure you know what exactly it is that you need. Specialty finance products are always more affordable than blanket packages. For example, many SMEs apply for a generic business loan to cover all sorts of expenses, instead of going for specialty, focussed loans. This not only makes things more expensive; it also increases the chance of having their application rejected.

An easy fix is to know what commercial finance products are available out there, and how you can best customise them to your needs.

6. Not Making The Right Points

This shouldn’t be a point of discussion, but we’ve seen too many SMEs fail to paint themselves in good light.

If you want to work with specialty lenders (like the ones we have on our panel), you will need to make sure that you know your business inside out. And by business we don’t just mean your day to day operations. You need to be able to demonstrate how you are planning to fuel the growth and overcome the competition. A detailed business plan that touches on all these point (and more) will always be helpful in getting lenders on board.

7. Weak Cashflow

This doesn’t and shouldn’t apply to every SME out there. However, you need to ensure that the cashflow numbers are always as healthy as possible.

Lenders, by and large, look for affirmative signs that tell them that you’ll settle the dues. And there’s no better sign of surety than strong cashflow numbers month after month.

8. Short On Security

Many commercial finance products require you to attach a security. It could range from personal guarantees and shares to properties and even vehicles.

Some specialty products (a good example is that of invoice financing) may not work at all without an inherent security. So, before you apply, know how these products work and what sort of security might be needed to get your application through.

9. No Trading History

Many SMEs try to apply for commercial finance right after they start trading. This is a rather hasty approach, because at that point, no SME can show any sign of credibility – no credit history, no volume of transactions and no track record.

To avoid this, we advise our customers to establish a long-enough trading history (typically six months or longer).

10. Tie All The Loose Ends

If your business has availed any loans in the past – however small the amounts – make sure you pay them off at your earliest, before you apply for commercial finance. If you aren’t in a position to make these payments right away, make sure these loans are represented correctly on your credit file, so that lenders can understand why you needed them and how you’re going to pay those back.

Commercial finance can appear daunting – but trust us, it’s anything but. With specialist lenders who know what your business needs, we’ve got you covered. To request more information or to request a call back, please call us on 03303 112 646. You can also get in touch with us here.

Thousands of UK companies plan to use finance to improve their cash flow in the future, according to new research.

Analysis by Purbeck Insurance Services found that 28% of SME executives interviewed said they were turning to external funders, including to cope with late payments.

Todd Davison, director at Purbeck Insurance Services, explained: “Cash flow is the life blood of any small business. But for a whole variety of reasons, not least the current economic uncertainty, an SME business owner may find themselves looking at unpaid customer invoices, bills from suppliers and wage rolls, and wonder where the money is going to come from.

“Small businesses are owed billions in late payments; whole supply chains are affected and end up borrowing to fill the gap while they wait to get paid.”

However, he warned that using finance to resolve cash flow problems is a “double-edged sword” and business owners should first consider operational changes that might deal with short-term problems.

Davison added: “It would be prudent for the business to take the time to review its financial situation as a whole. In doing so, the owner may find some changes can reduce the need for, or at least the amount of, additional finance.”

Strategies could include restructuring current finance arrangements, reviewing credit terms to suppliers, outsourcing the late payment debt, improvement stock control or looking at alternative sources of income such as renting office or warehouse space.

Other reasons for sourcing finance included acquiring equipment (27% of respondents), supporting a business acquisition (10%), R&D (9%) or recruitment (7%).

Davison recommended that if business owners are providing personal guarantees to secure loans, it is important to consider insurance to protect their personal assets should they encounter repayment problems.

Written by Miles Rogerson

Source: Asset Finance International

The CEO of online lending company Iwoca has written to the UK Chancellor warning that a government scheme to help small businesses access funding is “at risk of failure.”

Christoph Rieche wrote to Chancellor Philip Hammond on Thursday calling for a new task force to help repair the flagging Bank Referral Scheme.

The Bank Referral Scheme (BRS) was set up in November 2016 to help small and medium sized businesses (SMEs) access to loans and other financing. It came in response to a decline in lending to smaller businesses after the 2008 financial crisis.

Under the scheme, a bank that rejects an SME loan application must refer the business to an online platform. These platforms connect the business to fintech companies that might be able to offer them money.

Over 19,000 SMEs have been referred since the scheme was set up. However, Treasury figures show that only around 900 loans have been written. Iwoca said it is responsible for 55% of them.

“I am writing to you today because one of the cornerstone initiatives designed to help make finance more available to small businesses is at risk of failure,” Rieche wrote in his letter to the Chancellor, which was seen by Yahoo Finance UK. “Launched in 2016, the Bank Referral Scheme (BRS) has failed to deliver any meaningful impact.”

Rieche calls for a new task force, staffed by industry representatives and government staffers, to help “unlock its full potential.” Suggestions include making small businesses more aware of the scheme and using technology to make it easier to access.

“The BRS scheme remains one of the government’s potentially most transformational initiatives when it comes to making finance available to businesses,” Rieche wrote. “However, as with many ambitious targets, it does not come without complexity and more needs to be done to overcome them.

“We strongly believe this problem can be solved if banks, FinTechs and policymakers join forces.”

Rieche set up Iwoca in 2011. It offers online loans of up to £200,000 to small businesses, as well as online overdraft facilities. Iwoca has lent to over 25,000 businesses to date and the company announced in February it had raised over £150m in debt and equity funding.

By Oscar Williams-Grut

Source: Yahoo