Who or what is an SME?
Well, the answer depends on what you read. There are many different definitions, two common differentiators are turnover and the number of employees within a company. With so many differing definitions, a very blurred business profile of an SME emerges. According to the Companies Act 2006, an SME is, “a small company that has a turnover of not more than £6.5 million, a balance sheet total of not more than £3.26 million and not more than 50 employees.” There’s no specific mention of micro businesses, but what we do know is that is that a huge proportion of the private business economy supporting UK growth sits in ‘small’ (over 90%). Government stats show that growth within this sector has been significant.
Are SMEs being catered for in the world of finance?
There are still mixed messages on the funding available after 10 years since the ‘crash’, but in fact all types of SME can apply for funding, as long as they have been trading for at least 3 years and have a turnover of at least £1m with an operating profit of £100,000. So who caters for the SME who has been trading for 6 months, or the start-up entrepreneurs who are the genesis of the diverse business community in the UK?
The high street banks have played their part and indeed, have carved out their own niche in today’s SME financial sector. However, this often entails de-risking to reduce exposure in the more speculative lending and de-skilling, so that there is not the specialist knowledge required to underwrite the enquiries. Subsequently, there is currently little appetite for this type of lending and rejection by the bank can be very off-putting for small businesses. Approximately 173,000 applications for SME funding are declined annually and one in twenty of these business owners would not look elsewhere for funding. Others would continue to look, but the question is, where?
What alternative funding options are there?
The alternative market place can be broken into broadly four categories: Crowd Funding; Invoice Crowd Funding (secured by single invoice or debtor book); Equity Crowd Funding and Balance Sheet Funding (term lending, asset finance, growth funding, EPOS based funding etc), not to mention the sub division of secured v unsecured.
With over one hundred funders in the market it can seem overwhelming, but access to them is easy if you know where to look! Of course, going directly to the lender via their website is an option, but also using an aggregator site such as www.alternativebusinessfunding.com, which collects your business information – funding requirement, trading history, projected profits etc, or using a Finance Broker via organisations such as the NACFB (National Association of Commercial Finance Brokers) will have a good idea of what is available in the market and show you what options you may have. Once you have found potential funders, important points you should consider are:
– Is the funding appropriate?
– Are there comparable products?
– Do you know the actual costs?
– Is this complimentary to existing funding?
– Are there any penalties for redemption?
– What security will be required, and will it affect the business?
Knowing the answer to all of the above is imperative to ensure you obtain the correct funding. This is a fundamental point when raising funding, to try to ensure it is the correct funding and therefore fit for purpose.
Preparing your business for funding
Many prospective lenders (but not all) will require certain information in relation to your business and the funding you are applying for, some of the important ones you may be asked about are:
1. Business Plan: This demonstrates market knowledge and provides a benchmark for future performance.
2. Management Accounts: As part of routine financial housekeeping, every business should keep their accounting records (their ‘books’) up to date. Turnover, costs, gross profit and administrative costs all help provide a clear indication of net profit
3. Cashflow: A tool to allow businesses to assess the inflow and outflow of cash in the business, outlining potential seasonal trends, pinch points, and also identifying times when additional funding for growth will be required.
How we assist in SME growth funding
Credit4 was established in 2013, with a brief to ‘fill the SME lending gap’, to offer growth funding for all businesses trading for more than six months . Our objective is to provide innovative solutions with absolute clarity of pricing. Our Flexible Facility, with a term of 12 months, allows you to repay and redraw as often as you like within that term, with interest paid fortnightly and capital repaid by the end of the term. Our Dual Growth Funding, with terms of 12-24 months, is a combination of our Flexible Funding facility with a fixed term loan. The way we lend is different, we take time to understand each business, the people behind the business, and its growth potential without using algorithms or formulas.
“Access to this growth funding has improved seasonal cashflow and enabled us to invest in stock and develop the business internationally.”
Stu Anderson, Sales & Marketing Director, Young Soles
“After being ignored by high street lenders, we were looking for a partner that would assess us as individuals and give us a quick decision. Credit4 were approachable, bespoke and fast”
Steve Dickinson, Managing Director, BigStory
Alternative business funding provides SMEs with choice and increasingly tailored options. Talk to us on 020 3637 0570 about how we can support your business growth.