LFR on the Money - Business Bank and SME Funding

As part of our regular LFR on the Money series, Evette Orams, Managing Director of commercial finance broker Hilton-Baird Financial Solutions, gives her thoughts on the new Business Bank and how SMEs can secure the funding to achieve their objectives in the coming months.

Plans for a new Business Bank have attracted significant attention since being announced by Business Secretary Vince Cable at the Liberal Democrats’ annual conference last month, and understandably so.

With official figures suggesting traditional finance, in the shape of overdrafts and bank loans, remains hard to obtain, it should come as no surprise that this latest attempt by the Government to stimulate the flow of credit has been such a talking point.

Modeled on the KfW banks in Germany and the Small Business Administration in the US, it has the potential to leverage up to £10 billion to provide the funding that so many urgently need to progress and drive the stuttering economy forward. Yet with refined details unlikely to be unveiled until December’s Autumn Statement and the bank itself expected to take anywhere between 12 and 18 months to become fully operational, it fails to address today’s pressing issues.

Immediate concern

Although it is encouraging to see the Government has a long-term strategy to tackle the funding challenge, it’s difficult to escape the fact that businesses need tangible help right now.

The Funding for Lending Scheme, which was introduced in August 2012, was of course launched to provide this very support. However early indications are far from positive, with bank lending to businesses falling by £1.2 billion in August. Meanwhile, according to the Bank of England’s latest Credit Conditions Survey, demand fell during the third quarter of 2012. According to the report, this was due to a range of factors, “in particular a lack of merger and acquisition activity and capital investment, as firms have remained cautious given the current economic environment and uncertainty relating to the euro area”.

Confidence in the banks and the Government’s different lending schemes clearly remains low. The problem with these initiatives is that, irrespective of the name they are given, they all appear to only offer the same solution to SMEs’ wide-ranging challenges: overdrafts and loans. These products are far too inflexible in nature and therefore fail to provide the targeted cash flow support many businesses need at present.

Assessing all options

One product that does provide valuable support, but sadly remains comparatively under the radar, is asset based finance.

According to the Asset Based Finance Association, its members advanced £16 billion through a variety of tailored facilities during the second quarter of 2012 alone. And with almost 43,000 businesses as clients, it is gaining recognition as a leading funding solution.

Its premise is quite simple. With significant levels of cash being tied up in the value of assets ranging from debtors, stock and plant and machinery, funders advance cash against the value of these assets to get cash flowing. Depending on the business’s requirements and objectives, this funding can then be reinvested into paying suppliers, securing new business, meeting day-to-day commitments or even funding mergers and acquisitions.

The key strength of asset based finance is its flexibility. While an invoice discounting facility will be at its core, whereby up to 90% of an invoice’s value is released within just 24 hours of an invoice being raised to overcome the challenges of trading on credit terms, funding against other assets can be achieved via bolt-on facilities.

In the case of factoring, a dedicated sales ledger management service can be provided to remove the burden of chasing customers for payment. Additionally, all facilities can include credit protection in order to safeguard the business against the risk of debtor insolvency and protracted default.

Although the Government flirted with asset based finance by extending its Enterprise Finance Guarantee to include a top-up guarantee on invoice finance facilities, it is surprising that it has not done more to promote what is often the ideal cash flow solution for businesses of all sizes that trade on credit terms.

Real help

While companies continue to contend with a variety of cash flow pressures, the largest of those appears to be access to finance.

The UK’s SMEs in particular are integral to the nation’s economic recovery. However, it is clear that recovery cannot easily be achieved until businesses have access to the much needed funding which they have been starved of over the past few years. It is therefore important that they are aware that there is more to business finance than an overdraft or bank loan.

This direction ultimately needs to come from the very top. While traditional funding of course has its place, the Government needs to take the lead by raising awareness of other, and at times more suitable and timely, funding solutions.


Evette Orams is Managing Director of Hilton-Baird Financial Solutions, which is part of the Hilton-Baird Group of companies. As an independent commercial finance broker, Hilton-Baird’s aim is to clearly identify their clients’ business requirements and introduce them to relevant providers.

Hilton-Baird Financial Solutions was voted Asset Based Finance Broker of the Year 2009 & 2010 at the Business Moneyfacts Awards and UK Asset Based Finance Broker of the Year 2012 at the ACQ Global Awards, demonstrating its reputation and the trust its clients place in its service.

The business’ affiliations to the leading financial industrial bodies, the Asset Based Finance Association (ABFA), the Finance and Leasing Association (FLA) and the National Association of Commercial Finance Brokers (NACFB), ensures it maintains the highest level of standards for its clients.

Find out more about how asset based finance can help your business at www.hiltonbaird.co.uk/FS