Ultimate Finance Column: Funding options for SMEs
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AUSTIN Thorp, Managing Director (North) of ultimate finance, believes that the need to educate SMEs on their funding options is greater than ever.
Traditionally, SMEs have relied on banks to help them through difficult times, or to underpin their growth – with the changes in the landscape of the banking industry over the last few years, it is becoming apparent that SMEs are being left behind when it comes to understanding what routes are available to them when bank lending dries up. Gone are the days of having lunch with your bank manager – now businesses’ relationships with banks are anonymous, reliant on computer processes to decide whether a company is suitable for funding rather than any meaningful interaction. That works for some; but many SMEs, once they have been turned down by banks, aren’t aware of the alternatives that are available. Many of the Manchester-based companies that we are meeting at the moment are finding the environment challenging in terms of managing an existing cost base and funding growth. Whatever this year may bring, having survived the recession many SMEs are still faced with challenges in managing cash flow, finding resources to purchase new equipment, and working with overseas suppliers. This requirement for funding is immediate and very real, and an asset finance solution for example, for a company struggling to manage its cash flow, can instantly satisfy working capital requirements. However, there is a disconnect between this sort of offering and SMEs’ perceptions; in my view, advisers such as solicitors and accountants should have an understanding of what is available, so that they can better advise their clients in these sorts of situations. This is where the education of SMEs can be at its most powerful; when it is personal and timely. Traditional sources of funding for the SME market can be difficult to obtain and when they are the provision of additional supporting security being provided by the Directors is becoming the norm. We have seen a rise in SME owners resorting to temporarily funding their businesses by credit card, which is incredibly costly, or relying on friends and family for support. Whilst their determination to succeed is admirable, this is not a sustainable way of running a business, and if there was more awareness of the alternatives that are available I feel sure that this sort of activity would decrease. The Government, and in particular the Department for Business Innovation and Skills, have talked about the need for diverse sources of finance for SMEs in order to generate growth and create jobs, but I think that one of the most effective things that they could do is better inform business owners and managers about the options on offer, through services such as invoice, asset and trade finance, and thereby advocating less reliance on banks altogether. In order for SMEs to prosper throughout the economic cycle (and not just in periods when bank credit is widely available), there needs to be much more discussion about the flexible, supportive and wide-ranging alternatives. The option of satisfying working capital requirements by the business through an asset based lending product is becoming increasingly recognised for what it is intended, a means for a successful business to effectively self 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. More articles in
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