Alternative business finance market overview MARKET 04/2016
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 UK employment, millions Today “The UK has its highest ever employment rate 2008 of 74 %” credit crunch “Britain is now forecast to be the fastest-growing country in the G7” Sources: ONS, Gov.uk, Telegraph
But huge uncertainty ahead Deja Vu? Across the pond Closer to home “Ships are being scrapped at double the 1986 record rate” “Bellwether for the global economy has crashed to its lowest level ever”
Bank lending to firms collapsed over the last few years; it’s now finally stabilising £10 billion fall in lending to UK firms
Sadly for the economy, many faster- growing sectors are the worst hit Assets Traditional sectors High-growth sectors
The hidden story is that overdrafts are still collapsing; this won’t change “ A report from Funding Options, the online 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 The bank view(!) “Giving a small business an overdraft is like handing a child a loaded gun ” said a leading business banker” Source: BIS
So why don’t firms just go elsewhere? “ 56% of SMEs unfamiliar with any forms of alternative finance ” 10%~20% usage levels of alternative finance 30%~40% Dozens of finance products, hundreds firms using personal of finance providers credit cards Sources: Cambridge University, AXA, FT
Alternatives to overdrafts Invoice finance Business credit cards • Tough qualifying criteria • Factoring or discounting • Good if you can • Limited scale of funds • Unregulated market get them Non-bank overdrafts Invoice finance a staple • Unattra for many B2B sectors; • New types of overdrafts ctive for key considerations are banks • Proactive monitoring cost versus flexibility
Emergency or top-up funding Short-term loans Sell an invoice • Terms of a few months • Single large invoices • Up to a month’s revenue • Even purchase orders Revenue advances Dozens of short-term lenders, with diverse • Pay as a % of revenue criteria; challenge is • Fixed cost of finance knowing where to look
Longer-term growth facilities Term loans Structured bank loans • Typically 2-4 year terms • Drawdown on milestones • Traditional underwriting • Focused on growth firms Structured direct loans Biggest challenge for many firms is they lack • Bespoke & low volume physical security, in • Warrants popular often cyclical sectors.
Thinking outside the box to get growth finance: some recent case studies Nationwide £5m+ Midlands regional, Executive search, high-growth turnover £2m-£3m turnover doubling turnover Replaced bank with Replaced bank with Kept existing bank flexible invoice finance. flexible invoice finance. invoice finance. Unlocked personal Fast short-term loan Took unsecured pension for growth. over Christmas. ~£200k term loan.
Need finance? Have a go: fundingoptions.com “Professional , “Helpful, speedy straightforward, fast, friendly” and respectful”
Thanks & questions PRESS GOVERNMENT “The online “Hundreds of jobs business finance either saved or supermarket” created” EXPERTS CUSTOMERS “ Help SMEs to “Helpful, get the finance speedy and they need” respectful” FundingOptions.com @FundingOptions
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