With new lending models, finance directors can access the funding they need to develop and grow their businesses, says Dominic Buch, co-founder and managing partner at alternative credit specialist Caple.
As any financial director of a growing SME will know, accessing appropriate capital is a perennial problem. Bank of England data reveals the scale of the issue across the UK. The figures show that there is around £10bn in unmet lending to SMEs.
Yet if SMEs are to reach their full potential, they need growth funding. Alternative financiers are stepping in to help fill the gap. Many offer new ways to help SMEs gain the funds they need to grow. Accountants now also play a vital role, providing the advice and expertise to help their SME clients securing the right finance.
From our conversations with financial directors, we know that many SMEs have options for secured funding. But their options for unsecured lending are severely limited.
Too often the lack of additional assets to use as security prevents SMEs from raising further bank financing to develop their business. While banks can fund an amount that reflects the assets in a business, they can’t help if a business has no further assets.
Financial directors tell us that there is a significant funding gap for unsecured credit of between £500,000 and £5m. Too big for peer-to-peer platforms but too small for banks and debt funds. In an asset-light, service-based, economy such as the UK the lack of access to unsecured lending is a critical barrier to growth.
Accountants are the SME’s and finance director’s, most trusted business advisor and these advisors are playing an increasingly vital role for their clients.
Our research shows that nearly two thirds (61%) of small business owners would expect their accountant to have a good understanding of all the finance options available. The advice and expertise of an accountant or financial advisor is central to a successful funding outcome for the SME.
In addition to their advice and origination, accountants also help SMEs to develop the business plans and financial forecasts that make the case for funding.
Caple is the first in the UK to offer long-term unsecured lending based on the future cash flows of the SME. We do not require collateral or personal guarantees as security.
The loans we facilitate are part of BNP Paribas Asset Management’s SME Alternative Financing direct lending platform. This enables UK SMEs to access funding from institutional investors, a source of capital that hasn’t previously been available to them.
What’s more, BNP Paribas Asset Management aims to provide €1bn per year in funding to SMEs across Europe and €400m in the UK.
Often slightly larger, more complex, SMEs need more sophisticated financing. That means the best funding solution may consist of a range of providers.
One of the benefits of unsecured lending is that it is complementary to existing bank financing. SMEs can now access a blend of different funding options from a range of providers.
This might mean the SME has existing secured lending from their bank or another provider alongside a further unsecured loan. As a result, unsecured lending supports a blend of financing that delivers long-term growth funding and best suits the SME.
What’s more, a blended approach also usually reduces the overall cost of financing, helping further enhance growth potential.
Proving the appetite for this type of debt finance among SMEs, we have now completed deals worth more than £23m.
Accountants and business advisory firms are a key part of the process. Through their expertise and knowledge of their SME clients, they were able to originate loans and build detailed funding proposals with the finance director and wider team.
With new lending models that make the best use of accountants, institutional investors and technology, financial directors can access the funding they need to develop and grow their business.
In turn, SMEs can make an even greater contribution to UK economic growth and job creation.
