Phil Chesham, sales and marketing director at Positive Cashflow Finance, comments on the increase in SMEs using alternative finance options in the current market.
Since the recession, businesses have been understandably cautious when it comes to getting into debt, and the reticence of bank lending has been well documented. However, with the economy now showing signs of recovery, businesses are beginning to regain confidence in raising finance for growth.
A recent survey by BDRC continental market research consultancy revealed that of 5000 SMEs, 44% chose alternative forms of finance in Q2 2013, up from 39% from Q1. This trend is backed by statistics released by the Asset Based Finance Association (ABFA), which shows that total funding provided by the industry to clients has risen from £15.3bn for the quarter ending March 2012 to £16.3bn at the end of March 2013, a 7 per cent increase.
So why is Asset Based Lending (ABL) becoming an increasingly popular finance solution for businesses?
· It puts an immediate injection of cash into the business providing a reliable source of working capital
· It can smooth out irregularity in a firm’s cash flow
· It gives access to additional capital if necessary, which can encourage a business to expand at a faster rate that might have otherwise been out of reach
As a relatively low-risk solution for businesses looking to expand or improve working capital, invoice finance is a useful form of ABL. It is ideal for SMEs looking for funding between £25,000 and £5m and covers a range of financing solutions for businesses, based on assets such as stock, plant, machinery and property.
This type of funding can be used across a number of sectors that rely heavily on flexible finance options in order to maintain healthy cash flow and keep on top of repayments. It also gives a business the confidence and ability to take on new clients, employ more staff and invest in new technologies, for example. This will enable the business to grow at its desirable rate and reach its full potential.
Solid signs of improvement in the economy are encouraging businesses to look at alternative ways to fund growth and, with UK GDP growing at up to 3.5% each year, the market is gaining confidence. Management teams are realising the need to ensure their business is adequately funded in order to support the growth, but they must also make sure they have researched the most appropriate lender to partner with. It can be very tempting to opt for the cheapest deal, which may seem like the best idea at the time, but might not be in the long term. Establishing a strong relationship with a supportive funder who understands the business will always lead to the best outcome.
CASE STUDY: Harviglass-Fibre
Harviglass-Fibre was established in the 1960s and is a market leader in the development and production of glass fibre reinforced plastic products across a range of industries. In 2011, the Hyde-based producer received a crucial funding line from Positive Cashflow Finance to generate better cash flow and allowed the team to focus on its growth strategy and free up cash to invest in the business.
Will Austin, director at Harviglass-Fibre, said: “As a small manufacturer, we definitely needed help with our cash flow and the additional funding gave us the freedom to install the most up to date facilities and capitalise on the growing demand for fibre glass products.”