Home Business NewsFinance The big debate: How can SMEs fund growth?

The big debate: How can SMEs fund growth?

by LLB Editor
19th Jul 13 10:02 am

Can invoice financing help SMEs seize business opportunities?

This article is brought to you in partnership with ABN Amro

The UK economy is set to grow 1.1% this year, retail sales were up 0.2% in June and even UK unemployment fell by 57,000 to 2.51 million in the three months to May. But hold your hurrahs and hi-fives.

Why? Because a third of UK businesses are unable to seize growth opportunities. A new research by ABN AMRO Commercial Finance has found that almost two thirds (61%) of businesses believe they are missing out on business opportunities as a result of restrictive or inflexible bank overdrafts.

So how can SMEs get working capital in these tough times?

To get an answer to this elusive question, an alternative finance roundtable attended by industry figureheads including ICAEW’s Head of Business Simon Alsop took place in the heart of the City last week. The event, which lasted for just over an hour, saw a broad discussion on the topic of SMEs and start-ups struggling to gain access to working capital finance in a tough economic climate, plus what alternatives may be available to them.

Chaired by invoice financing providers ABN AMRO Commercial Finance’s Alex Hambrook, the roundtable was broken down into several different topical question sections. The first section addressed the question ‘to what extent should companies be seeking out growth opportunities?’ and saw Alsop, as well as Cashflow Acceleration’s Glenn Blackman and KPMG’s Witold Chojnowski, point to a lack of confidence in the economy as a major reason behind companies not seeking to grow as they indeed should be.

“The business consolidation cycle should be over by now; it should have been over in 2009 or 2010. People seem to have lost confidence, they are more risk averse now,” stated Alsop.

“If you as a business don’t grow then somebody else will come into your sector and do it instead, so you must grow,” added Blackman.

The second part of the discussion asked ‘how should businesses fund growth?’ and saw participants argue that the funding is indeed there and that the issue is “unlocking the cash”. Blackman pointed to facilities such as invoice financing as being an option for struggling companies.

“Typically they can raise a lot more money through (invoice financing) than through the traditional overdraft and…they can then release extra money for their cash flow,” he explained.

He went on to explain how there is certainly an appetite to lend amongst financiers, quashing the notion that the funding is simply not there. “I could point you towards a market of ABL lenders hungry to (do so). The trouble is that businesses don’t know about (facilities such as) asset based lending. They don’t fully understand traditional lines of credit and they certainly don’t understand alternative finance.”

It’s a point that was backed up by Chojnowski, who argued that funding for working capital finance was indeed available but needed to be “unlocked”.

“We understand that utilisation of ABL facilities is currently below 50% of agreed facilities on average indicating that both lenders and borrowers are sitting on lots of cash. The difficult question is how they unlock that cash to help fund new start-ups coming into the business world.”

The penultimate discussion of the roundtable focused specifically on ‘who is responsible for encouraging growth.’ The unanimous conclusion was that the influence should come from the very top.

“The government has got to provide a fertile ground for these businesses to start up,” claimed Chojnowski. He went on to suggest initiatives such as the introduction of tax breaks for start-ups. The age old problem of ‘red tape’ was then discussed, Alsop claiming that SMEs “find legislative obstacles very challenging” when attempting to acquire working capital finance. Like Chojnowski, he pointed to the government as having the responsibility for encouraging an environment for growth, to make the landscape “more business friendly.”

UHY Hacker Young’s Hazel Lucian led the final part of the roundtable discussion, addressing the relatively new concept of ‘crowd funding’, whereby individuals pool funds online and then offer these up to those struggling to access finance.

“At first (they were lending) in the tens of thousands but now these kinds of funding circles can raise up to a million pounds,” she highlighted.

In conclusion, the roundtable discussions agreed that funding is available and it was down to all parties concerned to educate borrowers as to the facilities available, with Blackman in particularly advocating the use of invoice financing.

This article is brought to you in partnership with ABN Amro

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