Alternative business finance market overview MARKET 04/2016 - - PowerPoint PPT Presentation

MARKET 04/2016

Alternative business finance market overview

Agenda

Strong economy, but uncertainty ahead The general state of business lending Alternative funding options for firms

In many ways, UK economy in fine shape

2008 credit crunch Today UK employment, millions

Sources: ONS, Gov.uk, Telegraph

“The UK has its highest ever employment rate

• f 74%”

“Britain is now forecast to be the fastest-growing country in the G7”

But huge uncertainty ahead

“Bellwether for the global economy has crashed to its lowest level ever” “Ships are being scrapped at double the 1986 record rate” Deja Vu? Across the pond Closer to home

Bank lending to firms collapsed over the last few years; it’s now finally stabilising

fall in lending to UK firms

£10

billion

Sadly for the economy, many faster- growing sectors are the worst hit

Traditional sectors High-growth sectors Assets

The hidden story is that overdrafts are still collapsing; this won’t change

“A report from Funding Options, the

• nline business finance supermarket,

has said the overdraft cull shows no signs of abating” “Twice as many SMEs in the North of England have had their overdraft facilities axed.. says business financial comparison site Funding Options”

This is a huge issue, because working capital drives most SME finance needs

The business need

Source: BIS

“Giving a small business an overdraft is like handing a child a loaded gun” said a leading business banker”

The bank view(!)

So why don’t firms just go elsewhere?

usage levels of alternative finance

10%~20% 30%~40%

firms using personal credit cards Dozens of finance products, hundreds

• f finance providers

“56% of SMEs unfamiliar with any forms of alternative finance”

Sources: Cambridge University, AXA, FT

Alternatives to overdrafts

• Good if

you can get them

• Unattra

ctive for banks Invoice finance

• Factoring or discounting
• Unregulated market

Non-bank overdrafts

• New types of overdrafts
• Proactive monitoring

Business credit cards

• Tough qualifying criteria
• Limited scale of funds

Invoice finance a staple for many B2B sectors; key considerations are cost versus flexibility

Emergency or top-up funding

Short-term loans

• Terms of a few months
• Up to a month’s revenue

Sell an invoice

• Single large invoices
• Even purchase orders

Dozens of short-term lenders, with diverse criteria; challenge is knowing where to look Revenue advances

• Pay as a % of revenue
• Fixed cost of finance

Longer-term growth facilities

Term loans

• Typically 2-4 year terms
• Traditional underwriting

Structured bank loans

• Drawdown on milestones
• Focused on growth firms

Biggest challenge for many firms is they lack physical security, in

• ften cyclical sectors.

Structured direct loans

• Bespoke & low volume
• Warrants popular

Thinking outside the box to get growth finance: some recent case studies

 Replaced bank with flexible invoice finance.  Unlocked personal pension for growth.

Executive search, doubling turnover

 Replaced bank with flexible invoice finance.  Fast short-term loan

• ver Christmas.

Midlands regional, £2m-£3m turnover Nationwide £5m+ high-growth turnover

 Kept existing bank invoice finance.  Took unsecured ~£200k term loan.

Need finance? Have a go: fundingoptions.com

“Professional, straightforward, fast, friendly” “Helpful, speedy and respectful”

Thanks & questions

CUSTOMERS EXPERTS

“Helpful, speedy and respectful” “Help SMEs to get the finance they need”

PRESS

“The online business finance supermarket”

GOVERNMENT

“Hundreds of jobs either saved or created”

@FundingOptions FundingOptions.com