While there are some companies growing strongly at present, the current political and economic uncertainty has created an environment where many are finding it increasingly difficult to plan long-term. The FSB has pointed towards the “chaotic” Brexit negotiations to explain the recent drop in business confidence. On top of this, the government’s business insolvency figures show another increase in the number of companies going under during testing times.
Whether they are growing or fighting to keep their business stable, everyone is looking to establish a strong support network to ensure they not only survive but thrive in the coming months. This is a space where commercial finance brokers and credit professionals come into their own and point SMEs in the best direction to find financial support. Connecting them with the right funding partner can change and improve their future performance.
Flexibility is key and there are several funding avenues for SME borrowing when traditional banks fall short.
One reason many of your clients will turn to you for support is that they need to purchase high-cost equipment but don’t have the capital to do so. An investment in new infrastructure can help a business kick-on or enable them to replace equipment that is no longer up to the task. There’s never a good time for equipment to fail but it often seems to occur at the worst time. Maybe a manufacturer has just received a substantial order from a customer when a pivotal piece of kit malfunctions – if repair isn’t cost-effective, asset finance is a flexible option to resolve the issue.
So how does it work? When equipment is needed but an SME doesn’t have the means to purchase it outright, they can turn to a lender to resolve the issue for them. An asset finance provider will buy the necessary equipment on behalf of your client after agreeing on a hire purchase or leasing arrangement that would see the client pay them a fixed monthly amount. In short, they would be renting the equipment from the lender, which has less of an impact on cashflow and simplifies the budgeting process.
Once the contract comes to an end, the client will have three options. If using hire purchase, they can buy the asset outright at the end of the agreement from the lender for a fee. If they’re using a leasing agreement they can extend the arrangement. Thirdly, they have the option for the lender to sell the equipment.
Ask a room full of SME leaders what one element of business is most harmful for their cashflow and late payments will always be raised loud and clear. How bad is the issue? The latest figures show that the UK’s small businesses face a price of £6.7 billion just to collect money they’re already owed, with the cost of recovering overdue money now at an average of £9,000 for each business. This is up almost 158 percent on 2017 figures and more worryingly, a third of SMEs are relying on overdrafts to help them meet monthly obligations.
This is where brokers are again vital as so many businesses will be looking for advice on who to contact to provide invoice finance. Instead of companies being forced to wait 30, 60 or even 90 days for payment, this facility allows companies to gain access to money they’re owed, from their outstanding sales ledger, to accelerate cashflow and increase working capital simultaneously.
Once a facility is in place, a client will be advanced a significant percentage of the money they are owed within 24 hours (often up to 90%). When the Invoice Finance company is paid by the client’s debtor, the client will be paid the remaining percentage.
Buying a property can be a very daunting process – in fact figures show that more than half of first-time buyers make themselves ill with stress while looking for their first home. The process is no easier when it comes to a business either looking to purchase, refinance, or release equity out of a property.
So, if your client has found the perfect property but doesn’t have the capital or commercial mortgage yet available to close the deal, linking them with a flexible bridging finance provider is the perfect solution. The bridging loan gives breathing space to arrange long term funding or to sell their property. This fills a gap and can keep a deal alive which would otherwise fall through. Similarly, many businesses have equity tied up in the properties they own, and a short-term bridging loan can be a useful source of funding to improve cashflow and allow any potential opportunities to be seized.
The three financial options discussed above are all available to businesses across any sector but as you’ll know there are always clients that have very specific and niche requirements. As business has evolved, so have the number of choices and now there are many types of financial support tailored directly to certain sectors. For example, a flexible funding partner can offer a service especially for your construction clients, raising a percentage of the money tied up in their Application for Payments to allow them to continue accepting work without worrying about their cashflow.
Similarly, there are facilities available personalised for the recruitment industry, a particularly complex, high-pressure sector with its own cashflow difficulties. When a company finds a financial partner that can remove the burden of financial administration through a combined back office and invoice finance product, they’ll be able to focus on hitting their objectives.
As the challenges facing SMEs continue to evolve, more and more will turn to you for financial advice with the hope of being connected with a funding partner that can offer flexibility and resolve cashflow issues. There are also many companies with growth plans but are structured in a way that doesn’t fit the confines of lending criteria from traditional lenders. This is why it’s so important to work with a provider that can offer all of the above and more. After all, if you can position yourself as a key part of the support network that resolves your clients’ issues, you’ll turn them into long term and loyal advocates of your brand.
Richard Waldman, Group Sales Director at Ultimate Finance