CFOs are uniquely placed to help small businesses negotiate alternative funding sources, says Dominic Buch of Caple
Securing funding can be a challenge. From our conversations with finance directors, we know that while they have options for secured funding, options for unsecured lending are limited.
Banks will usually fund an amount that reflects the assets in a business. But if a company has no further assets to offer as collateral, or if the directors do not want to commit
to personal guarantees, banks find it difficult to help.
Financial directors tell us that a funding gap of unsecured loans of between £500,000 and £5 million exists. Too big for peer-to-peer platforms but too small for the banks and debt funds.
In a service-based economy such as the UK, the lack of unsecured lending, based on an understanding of the future cash flows of the business creates an obstacle to growth, and even succession planning.
So, what do we need to do?
Accountants are trusted business advisors to the SME community and especially to the finance director.
The advice and expertise of an accountant or financial advisor is central to a successful SME funding outcome. They assist in navigating a crowded market, structuring the funding solution and preparing financial forecasts and business plans.
What’s more, accountants are well-positioned to advise on the suitability of any proposed lender.
In a world where all credit was provided by high street banks, this was unnecessary. However, with a larger number of non-bank entities now in the market, understanding the quality and reputation of a creditor has never been more important.
As banks retreat from this market, alternative financers are filling the gap. For instance, Caple’s strategic alliance with BNP Paribas Asset Management enables instutional investors to invest directly in unsecured SME loans.
In addition, BNP Paribas Asset Management has the ambition to provide €1 billion in funding across Europe and €400 million in the UK per year through its SME Alternative Financing platform.
Now, through new businesses like Caple, SMEs are able to access long term flexible and unsecured debt finance of between £500,000 and £5 million.
Proving the appetite for this type of debt finance among SMEs, at Caple we have just completed our second deal. We faciliated a £4.25 million unsecured loan to Ralph Coleman International, a retail services business.
This loan follows our first UK deal of £1.5 million with Baltimore Consulting, a specialist recruitment services company based in the West of England, in the summer.
In both deals, accountants and business advisory firms were a key part of the process. Through their expertise and knowledge of their clients, they were able to originate loans and build detailed funding proposals with the FD and wider team.
With new lending models that make the best use of accountants, institutional investors and technology, financial directors can access the funding they need to develop and grow their business.
In turn, SMEs can make an even greater contribution to UK economic growth and job creation. ■
Dominic Buch is co-founder and managing partner of Caple