For small businesses, finance is often needed to help them grow, diversify or, in some cases, to survive.
And small business finance is in a healthy state, with the British Business Bank recently revealing its Start Up Loans programme has lent £500 million to UK small businesses since being created in 2012. New data from the government-backed scheme showed 63,920 loans issued to fund small businesses across the UK, with the average loan amounting to £7,823.
While the reasons companies seek finance vary, recent analysis by Purbeck Insurance Services found that 28 per cent of SME executives are turning to external funders to help them deal with late payments.
This is attributed to the fact that many SMEs are awaiting late payments from larger businesses they have worked for. This in turn means smaller businesses face unpaid customer invoices, bills from suppliers and employee salaries. As a result, SMEs “end up borrowing to fill the gap while they wait to get paid”, according to Purbeck director Todd Davison.
Fortunately, the options for SME finance are expanding all the time, with banks and new financial institutions offering small businesses and increasing array of convenient or innovate finance options.
Here are some of the more interesting finance options that have emerged in recent months:
Real-time lending decisions
Small business lender iwoca, which has been innovating for some time, launched real-time loan decisions in July. By partnering with finance marketplaces Funding Xchange and Funding Options, iwoca is making it possible for small business owners to receive loan decisions within 30 seconds. If approved, borrowers can immediately draw down funds.
iwoca says the service is intended to increase certainty for customers making decisions based on available finance, compared with the traditional approval in principle offered by more traditional business lenders. Loan amounts will initially be limited to £15,000 through a panel of more than 70 lenders that Funding Options has on its books.
iwoca commercial growth director Colin Goldstein suggested small businesses looking for finance should have the same seamless experiences as consumers who use aggregators to book travel insurance, hotels or to buy a new car.
Centralised SME lending
Further innovation around small business lending could be around the corner, says Mark Carney, the Governor of the Bank of England. The UK central bank will lay the groundwork for a new platform to help small companies get loans by having key underwriting data in one place, continued Carney. Lenders would be able to access credit and other data held on companies on the platform to speed up lending.
Despite SMEs employing 60 per cent of the UK’s private sector workforce and contributing half of British GDP, there is a £22 billion funding gap in the SME loan market according to Bank of England figures. A major reason for this, according to Carney, is that the assets small businesses are seeking to borrow against are increasingly intangible – such as the brand or user base – rather than physical machinery or buildings.
Green finance options
There is also innovation among high street banks, with HSBC launching a new range of green finance services aimed at helping businesses of all sizes strengthen sustainability initiatives. These include a range of new loans and a Green Revolving Credit Facility (RCF) available to SMEs all the way up to large corporates.
The green loans services were trialled last year and have been extended to SMEs wanting to secure loans for sustainability initiatives. The minimum green loan starts at £300,000 and HSBC UK has already provided green loans totalling £600 million as part of the pilot.
Funding from the high street
While less innovative, Barclays recently launched a £14.7 billion lending fund to help SMEs through the uncertainty of Brexit.
The fund will provide loans, commercial mortgages and cash flow funding for investments with Barclays saying it will help businesses at various stages of growth and development to deal with and capitalise on Brexit uncertainty.