Alternative Funding for the ‘S’ in SME

Supporting the ‘S’ in SME

Chapters1. Exploring the definition of SME2. Are SME’s being catered for in the world of

finance?3. What alternative funding options are there?4. Preparing your business for funding5. How we assist in SME growth funding

Chapter 1. Exploring the definition of SME

Who or what is an SME?

• The answer depends on what you read!

• Many different definitions• Based on turnover• Number of employees

• Giving a very Blurred ‘S’ business profile

• Let’s Google SME…

Small: UK Companies Act 2006

Micro

T/O<£6.5m<50 employees

All the definitions differ

• The majority of businesses fall into small category

• No specific differentiation of micro businesses, they are included in the ‘small’

• What we do know is that a huge proportion of the private business economy supporting UK growth sits in small

• Growth in the sector has been significant as depicted by Government stats

So far we know…99.3%

0 – 49 Staff

5.3M businesses employing 12.4Mstaff

Majority SME’s

Chapter 2. Are SME’s being catered for in the world of finance?

There are mixed messages on the funding available for them

Catering for a specific section of the SME population

Media Coverage shows some SME funding is available

All types of SME’scan apply for funding

as long as they have been:

• Trading for 3 years• Have a turnover of at least £1m• Operating profit of

£100,000

We do acknowledge the high street banks have played their part and carved out their own niche

in today’s SME financial sector. However this entails:

• De-skilling so lack the specialist knowledge required to underwrite these enquiries

• No appetite for this type of lending at this time

• De-risking to reduce exposure in more speculative lending

• Approximately 173,500 SME applications are declined annually• This equates to 3,336 weekly declines, and we know • 1 in 20 ‘S’ business owners were put off and did not go

elsewhere for finance• 166 a week stopped looking • 3,170 a week kept on looking

Why are there so many rejections?• ‘SME’ is a broad spectrum • Lenders focus on, and lend to, specific ‘sections’ within this spectrum

However, rejection puts off many

The conundrum for an ‘S’ is where to look?

Chapter 3. What alternative funding options are there?

Where do ‘S’s go next for funding?

Alternative Funding

Bank

Do Nothing

The Alternative market place

• Crowd Funding

• Invoice Crowd Funding (secured by single invoice or debtor book)

• Equity Crowd Funding

• Balance Sheet Funding (Term lending, asset finance, cashflow, growth funding, EPOS based funding etc.)

Funding

Platform

Invest

Interest

Repay

Crowd Business

Equity

Borrow

Repay

Sell Shares

Funder

Borrow

There are alternative funders available, notably;

Alternative Funding Sector = Choice from over

100 Funders

How to access this marketAccess to the funders is surprisingly easy, if you know where to look!

• Direct to each lender via their web site

• Using a specialist Financial Adviser

• Using an aggregator site

• Social Media

Aggregator sites collect your information and present options to youYou answer questions about:• Funding requirements• Trading History• Security available• Projected profits• How long funding is required

Once you have found potential funders there are several important points you need to consider:

• Is the funding appropriate?• Are there comparable products? • Do you know the actual costs?• Is this complimentary to existing funding?• Are there any penalties for redemption?• What security will be required, and will it affect the business?

Knowing the answer to all of the above is imperative to ensure you obtain the correct funding

Specialist financial advice can be obtained from NACFB nacfb.org

Chapter 4. Preparing your business for funding

CASHFLOW FORECAST, arguably the most crucial yardstick by which the affordability of credit is usually judged by the prospective lender.The forecasting process: pleasure or pain?

Optimistic v Pessimistic v Realistic: the truth will out!

Understand the outputs: external help is available

1. Cashflow

www.credit4.co.u

k

2. Management AccountsWhy have them?

• Turnover• Costs• Gross Profit• Admin Costs

Indicates

NetProfit

How often?• Daily / Weekly / Monthly

/ Half Yearly…

Cloud Technology is availablesome lenders require access toview business transactions

Value

www.credit4.co.uk

www.credit4.co.uk

• Is it worth the time, effort, & cost• A window for the business and the

people behind it• Be prepared to answer questions• It demonstrates market knowledge• Provides a benchmark for future

performance • Most entrepreneurs ‘Talk the Talk’ but

cannot transfer their enthusiasm onto paper

3. Business Plan

Chapter 5. How we assist in SME growth funding

• Established in October 2013- Brief ‘to fill the SME growth funding gap• Start up funding/grants-£25,000 2nd tier funding £150,000+• Funding for all business growth for businesses trading 1+ years

• To provide innovative products with absolute clarity of pricing

• Credit4’s flexible funding is available to a range of UK businesses including

• 70% of ‘S’ in SME’s are sole traders and partnerships! • Credit4 has two types of funding available:

‘Flexible Facility’ and ‘Dual Growth Funding

GAP

Flexible Funding*£15k - £50k

*12 months

*Arrangement Fee 4%

*Interest serviced fortnightly

*Capital repaid at the end of the term

£15k £50k

1 2 3 4 5 6 7 8 9 10 11 12

Paid on completion

*Flexible to us, repay, redraw as often as you like

*12-24 months

*Arrangement Fee 3.5%

*FF Interest serviced fortnightly

*Amortising Term Loan repaid monthly

*Capital repaid at the end of the term

£50k £100k*£50k - £100k

1 2 3 4 5 6 7 8 9 10 11 1213 14 15 16 17 18 19 20 21 22 23 24

Paid on completion

*Flexible Facility PLUS fixed term loan to extend total value

Businesses must be UK registered

The funding MUST be used for business growth opportunities

All directors/Owners must provide a suitable Personal Guarantee

Funding must be for £15,000 - £100,000 over 12 – 24 months

There are 4 basic requirements:

• We do not underwrite by algorithm

• We take time to get to know the business owners and their business

• We get to know the business drivers and understand the growth potential

• We look to support the businesses from their early years and will signpost clients to appropriate funders when applicable

How are we different?

Summary• The significant percentage of the ‘S’ in SME refers to MICRO

business • The M (representing 0.6% of the business community) are generally

the businesses used for reporting lending availability in the SME sector.• Start up grants and loans are available (usually on a regional

basis)• Funding for businesses with 2+years trading history and minimum

turnover of £200,000+ has become increasingly available• Funding between start-up and 3 years+ trading is still difficult to

obtain• Alternative Business Funding provides SME’s with CHOICE• Alternative Business Funding provide SME’s with TAILORED options• Credit4 is one of the funders who fund business GROWTH from

early years onwards where appropriate for the business

Supporting SME Growth in the UK