Ultimate Finance Column: Project Merlin will benefit some SMEs, but alternatives are still attractive
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AUSTIN Thorp, Managing Director (North) of ultimate finance, says that whilst commentators are suggesting that Project Merlin may not hold all the answers to SME funding, there are providers out there who can offer an alternative. The Bank of England’s announcement that the four biggest British banks (RBS, HSBC, Lloyds and Barclays) as well as Santander will make £76 billion available for SMEs has been scrutinised by commentators. Whilst this is undoubtedly a step forward for SMEs, who are among businesses hit hardest by the downturn, it might not prove to be as big a step forward as it first appears. The commitment to lend £76 billion will be a rise of 15% over that which was leant in 2010 to SMEs; clearly this is a significant increase. What is not clear are the terms on which these funds will be available; so whilst the funds might be technically available, if the terms offered aren’t tenable then SMEs will be in just as difficult a position as before. As an alternative, one of the benefits of invoice, asset and trade finance is the flexibility that these services can provide. When times are challenging, SMEs need to be working with a provider that can adapt to the broader economic climate as well as the individual cycles of the business. For example, some of the Manchester-based companies that we work with find that a large order may result in an initial outlay by the business to buy materials, and they will not then receive payment for some time, once the finished product is delivered. Similarly, professional services companies need to pay employees regardless of when their own clients pay them; this sort of lumpiness in a business’s cash flow needs to be supported with a flexible solution, and recently banks have been increasingly reluctant to provide this. An example of the way these solutions work is an independent publishing house that we have worked with since 2009, when they approached us to help resolve the difficulties they were having managing many different streams of payment. This arose as the company grew and had to pay significant cash advances to new authors before any revenue was realised. The key to supporting this client was to provide a flexible package that meant that they stayed in control of their finances, but could rely on our assistance at certain points, depending on the timing of their own deals. As an alternative to bank lending, invoice, asset and trade finance all enable the business owner to remain in control and support their business in the most appropriate way through difficult periods. In addition to this, these solutions can also help to drive growth in better times. Satisfying working capital requirements through asset based lending solutions is becoming increasingly recognised in many cases as an attractive alternative to bank lending. Banks may have committed to dedicate these funds to SMEs, but what is yet to be seen is the detail of the terms of this lending, and therefore the likely impact on SMEs. Whilst Project Merlin can have some effect, it will be difficult to fundamentally change the way banks lend to the SME part of the market. Undoubtedly their newly committed offering will be viable for some businesses, but for are others, the alternatives will remain much more flexible and accommodating methods to fund growth. Austin heads the team at ultimate finance’s offices in Manchester. With 24 years’ experience in the finance sector, Austin is also a Manchester City season ticket holder, plays off a handicap of 14 at Worsley Golf Club and enjoys watching rugby.
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