roundtable: economic recovery 73
bad debt, so from the borrower and lender aspect it is looking good. Equity crowdfunding is also a really interesting space at the moment.
“People are looking more widely at the options and absolute costs of funding rather than the face-value interest rates. Some loans may be too risky for banks, but if SMEs can demonstrate adequate servicing of alternatively-funded loans, they can get them, although admittedly it can be more expensive money.”
David Podger said the key to avoiding a PE/ VC ‘horror story’ was to fully understand the funder’s end-game objectives. “It’s a good lesson for any SME considering external support to ask: What’s in it for them?”
Jane Wills stated that the ‘tail should not wag the dog’ at any time. There had to be a clear commercial reason for doing something. “You need to look at the long-term vision and then put in the structures that will make it come to pass.”
Getting help from like- minded businesses
Former banker Bill Smith was aware of many alternative funding options, but said there was a rising popularity for peer funding, with like- minded businesses or supply chain partners working together to raise finance. “There are two advantages: we know what they do, and because we are bigger than them we have an expertise in a type of management that they don’t have.”
Bill Smith
Nash mentioned that Santander was reviewing its funding positioning for early-stage businesses, looking at the crowdfunding and mezzanine options in the current marketplace, in order to provide a better funding mix for its customers.
Taylor is currently working with the CBI’s SME Council evaluating non-bank lending options. “There are a lot out there, and on the cloud side things are pretty hot as this new market opens up. When people say they can’t get funding from their bank or elsewhere, I do question whether their businesses are actually sound in the first place.”
Are SMEs willing to give up part of their business?
Private equity funding was also an option, said Penelope Garden. “Giving up equity is a big mental hurdle for people to get over, but for a slightly smaller slice of the big pie, they can gain expertise, experience and finance to help grow their business, particularly if they are looking at an exit strategy.”
Singh-Barmi suggested bank funding was fine for cashflow, working capital issues but PE or VC funding was often needed for serious growth. “They can be much more aligned with you; they want growth too and will be more aggressive, less cautious.
“Banks can tend to start sweating too early, but PE/VCs have the appetite to muscle through problems. If an SME gets the correct partner, then it can also get knowledgeable support and mentoring.”
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“It’s often difficult for companies to grow from £1m-5m, then £5m -20m businesses. It’s quite a trick because you need different management skills at different levels, but people in the same sectors can learn from each other.”
Wills agreed and mentioned that Haines Watts is broadening its professional advisory services to include peer support too. “We accept that our speciality is in financial affairs, and that while we have extensive commercial expertise we won’t always have all the answers. We therefore aim to put specific clients in touch with other clients who have similar issues, in the belief that they too can learn from one another.
“Owner-managers can be quite isolated within their business bubble in the early years and this scheme will spread the knowledge and experience that other entrepreneurs have.”
Preparing the right
information for funders Edwards highlighted the need for better information when preparing funding proposals or servicing a debt, particularly with VC and PE deals. “They can be very hot on the detail, relevance and the sales-profit-cash interconnect within a business. This is where many early stage businesses would benefit from an interim FD.”
Garden: “Many SMEs tell us they need more money to grow, but they only do management accounts quarterly, if at all, or have set no budget for next year, and so have no idea what money they have got and how much they actually need.”
Murray suggested that too few SMEs realised Nikki Singh-Barmi
Elliott suggested using visionary companies like Google and LoveFilm may lack relevance for SMEs. They can take the sentiment of ambition from it, but sometimes the gap is too big for them to believe they can achieve it. “That’s why VitalSix facilitates business peer groups, putting similar people together who have been there and done it.”
Wills: “And, that’s why Haines Watts is putting like-minded clients in touch with each other.”
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the true value of having professional advisers involved with their day-to-day operations.
Perhaps reflecting our more litigious, claim- conscious society, lawyer Garden noted: “People are much keener nowadays to get their legal documentation absolutely correct from the outset."
Growth is not all about
funding Nash stressed that growth was not just about obtaining funding, there were often other factors required. “We are not the type of bank that wants to lend to business and then walk away.”
He pointed out that Santander’s Breakthrough scheme provided business guidance and support for SMEs as well as debt-finance. Business Masterclasses are provided with leading exponents such as Google, LoveFilm and Saatchi & Saatchi, along with graduate internship assistance, trade missions and introductions to professional partners.
Edwards agreed there was a benefit in matching ambitious SMEs with much larger organisations, and vice-versa. The big players, for instance, might learn from the SMEs how to become more agile, innovative etc.
THE BUSINESS MAGAZINE – THAMES VALLEY – SEPTEMBER 2013
www.businessmag.co.uk
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