Where do SME’s go when the bank says no?
Industry News20th May 20190 CommentsEllie Walker-Smith
According to FIBA (Financial Intermediary and Broker Association) one-third of SME’s struggle to secure the full amount of funding they need to grow and develop their businesses. This is not because there is a lack of people who can assist them, but the fact that the business in need is not fully aware of all the options available to them and how they go about sourcing them.
It is said that 52.5% of small business owners approach their high street bank first, unsurprisingly as in the past they were the cheapest and most effective way of obtaining funding. However, these days 46% of the 52.2% of applicants were declined by their bank/other high street banks. The problem lies here; half of that rejected 46% then chose to look no further for funding believing that there are no other avenues to explore or that if their bank had declined them then they would struggle elsewhere.
The lack of confidence in alternative lending sources is one of the reasons that holds people back when looking for other sources of funding. However, it takes both parties to have a bit of faith in one another as at the beginning of a relationship between a lender and their client. They are both taking a risk. The client; will the lender rip the client off and the lender; is this client credible, will they make their repayments?
So, if your business was turned away by a high street bank and you need funding then why not take 5 minutes to explore what other funding options are available to you.
Asset Finance is just one of the ways that you can fund the essential items your business needs. It gives you the flexibility to purchase the equipment you need with affordable repayments, instead of a large upfront cost, helping you to manage your cash flow and grow your business efficiently. Why spend hundreds of thousands of pounds out of your cash flow when you can use someone else’s pool of funds to keep your cash in the business to be able to continue to grow and trade without the worry of tight cash flow due to capital expenditure.
There are 2 main types of asset finance; a hire purchase where you repay the value of the equipment over an agreed period of time (usually around 5 years). Once you have reached the end of the term you then pay a pre-agreed cost and take ownership of the equipment.
The other route is a lease where you take the finance over a period of time and at the end of the term you can either give the equipment back or there is sometimes the option to continue using the same equipment at a reduced monthly cost.
Both have a different set of benefits to your business and it really depends on the business and what type of equipment as to which solution would be most appropriate with the business.
Asset finance is not just beneficial for the purpose of capital expenditure, it also compliments any other funding facilities you may already have and mitigates the danger of being over exposed in one area.
For example, you can have a business loan, an overdraft facility and still be able to get asset finance without being too overexposed in terms of business loans. It’s also worth bearing in mind that when going down the asset finance route the security for the lender is in the asset which means as a business owner you won’t have the added pressure of a personal guarantee or second charge over the business or residential property, again spreading out the business risk over various funding facilities.
Asset finance not only provides additional credit lines, but it can also release tied up cash within an asset. This is done by refinancing assets your business may have already purchased, for example, if you spent £500,000 on equipment out of cash flow then find that 4 months down the line the cash flow is tight from that large chunk being taken out, refinancing the equipment puts the £500,000 back into the business cash flow. This is known as a sale and lease back and it’s effectively when a finance company buys the equipment of your business (pays you £500,000) and then you lease it back off the finance company paying them back in the monthly instalments.