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
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