With the threat of storm clouds brewing on the economic landscape and a number of political events both home and overseas on the horizon, it is becoming increasingly clear that UK SME’s are siding on the edge of caution when it comes to running their businesses. Financial stability and working capital finance should be high on any business agenda, so it is therefore concerning that 50% of SME’s now regard themselves as permanent non borrowers*. The team here at Pulse Cashflow Finance believe that business owners might be developing a tunnel vision that could prove expensive if they batten down hatches rather to the detriment of growing their businesses.
While economic conditions remain difficult and the future uncertain not only in the UK and Europe but further afield, we can forgive UK SME’s for exercising caution in these uncertain times when it comes to plans they have for their businesses. No one will argue that good financial management isn’t crucial to the success of any business, in times like these, but it is also well understood that businesses must plan for future growth if they are to give their businesses the best chance of survival and success.
With this in mind, we must ask ourselves, how concerning is it that 50% of UK SME’s consider themselves “permanent non-borrowers”. What does this mean? Does it mean that they have lost the ambition to grow their businesses and therefore don’t need funds or are they funding their growth from other means?
It is vital that we understand their sentiment and support SMEs as they form 99% of the UK business stock and play a vital role in the creation of jobs, wealth and a prosperous economy.
The SME lending market throws up some revealing figures.
Overall net lending to business is on the increase hitting £2bn** in 2015 however, the number of SMEs using external finance is static which is not good news for the government who are working hard to ensure banks improve access to finance for SME’s
80% of applications for finance made are successful which on the face of it is good news. However, SME’s aren’t applying for finance with loans/overdraft applications 13% lower than 2014
Deposits are up by 7% year on year coupled with the fact that 40% of businesses grew in 2015
75% of businesses are looking to pay down existing debts and funding facilities are not being fully utilised with 49% of funding lines used giving businesses a 51% headroom
SMEs don’t consider there are any significant barriers to trading at this time. Only 13% mention the economy and this is down dramatically on previous years.
The invoice finance industry also only showed minimal growth if not static levels during 2015
It is hard not to draw the conclusion from these figures that SMEs are reducing their reliance on external finance in response to the uncertain economic and political scene. Although this is a responsible thing to do, it is our belief that this narrow vision could detrimentally impact their businesses if they forsake investment to grow their businesses. We strongly believe that SME’s need support and encouragement to grow.
So what should financiers be doing? If the finance industry is to encourage SME’s to source and use more external finance to take advantage of the opportunities in their markets then we need to ensure we deliver decisive action, not prolonged discussion and there is undoubtedly a danger that getting deeply entrenched in the lengthy processes required by some lenders prior to releasing funds can cause attention to be diverted away from other critical aspects of the business, leading to further crises that could have been avoided – and after all of these processes, the financier may still say ’no‘ to funding the business.
At Pulse Cashflow Finance, we believe that Invoice Finance could be the answer. By using cash that is tied up in their unpaid invoices – they are using their own funds to reinvest in growing their business. Invoice Finance companies focus more on the verification, creditworthiness and collectability of the debt rather than on demanding historical information based on the past performance of the business, ensuring the process is much less painful. By focusing on the basic necessities of the deal – reviewing a detailed aged analysis of debtors, their credit worthiness and the sales ledger - Pulse guarantees to help clients set up a flexible invoice finance package within five working days, simply because we stick to evaluating the asset against which we are lending and have the systems in place to verify, monitor and control the sales ledger going forward to maximise efficient collections processes and enhance cash flow – giving the business managers the breathing space they need to attend to the day to day requirements of the business itself.
Clearly, there is a better way. Pulse has successfully lent over £5 million to businesses across the UK over the past 12 months and our clients agree that cutting through the administrative mountain required prior to receiving a proceed-able offer was of enormous benefit to achieving a successful outcome, removing much of the stress and headaches regularly associated with setting up financial arrangements and allowing them to keep their businesses moving forward. Many believe that had they been required to spend more time buried in administrative detail during the set up period, their businesses would have suffered and some even have gone under.
We need UK SME’s to expand their vision and understand that we need them to be invest and grow their businesses – after all they are the backbone of our economy. Funders need to play their part to make sourcing, applying and accessing finance as easy as possible for them. The figures seem to suggest a different story at the moment and we need to all work together to ensure accessible finance for all is within easy reach and encourage SME’s to make use of it.
*BDRC SME Finance Monitor, Q4 2015
**BBA – SME Stats Q4 2015
BDRC SME Finance Monitor Q4 2015 -