Advice & Best Practice

A blended approach to business finance

Some 10 years after the financial crash and SME funding remains one of the most persistent problems impacting the UK economy.

Bank of England data reveals the scale of the continuing problem. Funding to SMEs has flatlined over the last three years.

Yet if these businesses are to reach their full potential, they need growth funding.

Now, with the help of accountants and alternative financiers, growing businesses are able to access the funds they need.

What’s the issue?

When SME funding is discussed, the usual claim is that the high street banks are not lending to SMEs. However, the situation is more nuanced.

Certain parts of the business finance market work well.

For instance smaller SMEs are able to access finance from new lenders such as peer-to- peer platforms. Larger business borrowing amounts in excess of £10m can be well served by high street banks and specialist debt funds.

The real problem is for mid-sized SMEs which do not have enough assets to use as security. We call these the ‘missing-middle’.

Often these growing SMEs need more sophisticated financing. That means the best funding solution may comprise a blend of providers rather than a one-stop-shop such as a bank.

To date, SMEs have struggled to find such a blend of providers and finance.

But access to genuinely unsecured lending and advice from accountants is now available and it can solve the problem. So, SMEs can now get the blend of funding that best suits their business.

What do growing businesses need?

Growing SMEs often need between £500,000 and £5m in to fund growth, stock or changes of ownership (such as MBOs). While banks and asset-based lenders can fund an amount that reflects the assets in a business, they can’t help if a business has no further assets.

Even when a business does have additional assets to use as security, it does not always make sense for SMEs to borrow against them from the same provider.

Complementary sources of finance can be better suited to helping fund growth. Raising funds against the cash flow that the assets generate, as well as the assets themselves will increase the funding available.

Furthermore, different types of finance are best suited for different purposes. For instance, it would not always make sense to use just one form of finance to cover working capital, replace old equipment and fund growth.

Such an approach is inefficient. It fails to make the most use of business’s assets and capital and does not help the SME meet its financial goals.

Plotting a course through these issues is complex. Very often SMEs need an accountant to help them navigate the maze.

What’s the solution?

Caple is the first in the UK to offer long-term unsecured lending of between £500,000 and £5m based on the future cash flows of the business. We are genuinely unsecured and do not require debentures, floating charges or personal guarantees as security. In addition, loans complement existing secured lending.

As a result, SMEs can now access genuinely unsecured lending, enabling them to raise funding from a range of providers.

For instance, a business might have existing secured lending from their bank in the form of a loan or overdraft. It may also have another form of lending such as receivables or invoice financing to cover working capital requirements. Further unsecured credit to fund growth sits comfortably alongside all of these options.

By complementing lower-cost secured lending in this way, unsecured loans can reduce the overall cost of funding while enhancing long-term growth potential.

How do accountants help?

From banks to specialist debt funds and alternative financiers, SMEs can be confronted with a confusing range of providers when looking for capital.

So in order to build a blended financing structure that works, SMEs often need the advice and expertise of an accountant or business advisor.

An accountant or advisor will help clarify what the firm is trying to achieve and the purpose of the funding.

With this understanding, the advisor will be able to assess potential sources of capital, as well as the cost and suitability of that capital for the business.

Business advisors are also well placed to take account of an owner managers’ appetite to risk and their approach to lending. For instance, many directors do not want to agree to onerous personal guarantees that many high street lenders require.

Once the accountant has recommended appropriate sources of finance, they can then help develop the business plans and forecasts that make the case for funding.

Often accountants and advisors make the difference between an SME accessing funds and not. They are an integral part of how Caple support SMEs to access unsecured lending.

We facilitate loans through our local partner network of accountancy and advisory firms. As part of this, accountants also help SMEs to develop the plans and forecasts that support their application through our platform.

Funding growth

Proving the appetite for our unsecured credit alongside secured lending, we have recently completed deals worth more than £23m.

Accountants and business advisors have played a key part in all of our deals. With their financial nous and knowledge of their clients, they have been able to secure the blend of funding that best suits their clients.

In doing so, they have helped reduce the costs of financing and enhanced their clients’ growth potential.

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