corporate finance 23


SMEs – the right funding strategy for growth


Kirsty Sandwell, head of corporate finance southern region for Baker Tilly, considers the options


The economic recovery continues


Cautious optimism continues to underline the state of the UK economy with growth being seen across all of Britain’s main sectors. According to the Office of National Statistics (ONS) the economy has grown by 0.8% in the first quarter of 2014, marking the fifth consecutive period of GDP growth; the longest positive run since the financial crisis.


SMEs represent the backbone of the UK’s economy and are crucial to a sustainable recovery. Consequently, the attitudes and actions of this key group will play a major role in determining the strength of the continued recovery.


Baker Tilly’s “Your Business Outlook 2014“, which summarises findings from a survey of 750 SMEs with revenues up to £50 million, revealed that SMEs, although being optimistic for 2014 are exercising caution in how they plan for the future. However, there is a real concern that without SMEs being prepared to invest and expand, the UK’s overall economic recovery may be compromised


Funding solutions to suit your needs


A range of funding options is available to SMEs, all have different characteristics, enhancing their attractiveness to different business sectors.


Bank lending


Lenders continue to have a reduced ability and appetite to lend and are increasingly focusing on designing funding arrangements in order to reflect their customers’ needs. There are a wide range of potential funding tools in the banks’ armoury, but the main categories are invoice finance (typically confidential invoice discounting or debt factoring); asset finance (mainly hire purchase or leasing arrangements); and trade finance (including documentary credits, bills of exchange, guarantees and foreign exchange services). The key challenge however, remains pricing. Many SMEs are still acclimatising to the higher costs associated with funding than they experienced before the financial crisis struck. Businesses need to be able to deliver a strong return on investment. Where this can’t be achieved, the cost of funding will be prohibitive, and where the


THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – JUNE 2014


allows the business to focus on growth and to deliver value for all shareholders.


Government initiatives


Despite numerous government funding programmes to help businesses grow, it seems a lack of awareness and understanding is hampering UK businesses. These initiatives are specifically designed to help businesses invest and expand, with minimal risk. With so many businesses unwilling to take on more debt it is important SMEs explore government supported funding schemes such as the Enterprise Finance Guarantee (EFG). The EFG is one of 700 government schemes available to support businesses with strong cashflows but not necessarily with the back-up of asset or debtor security that banks would require.


Innovative funding options


Crowd funding and peer-to-peer lending continues to receive plenty of media attention. Typically these sources have been exploited for start-up businesses looking to gain profile with consumers, in addition to securing funding. Whilst these are still maturing funding options, they are slowly making their way onto the platform of credible solutions.


The resurgence of AIM


Given the improving mood of the overall economy understanding the risk/return characteristics of different funders is a starting point


plans aren’t clearly and credibly presented, funding may not be forthcoming.


Equity funding


SMEs continue to be sceptical about what a tie-up with an equity funder would mean. However, the UK venture capital and private equity community provide an extremely valuable source of funding and are able to open doors for a portfolio company through relationships in a sector, providing further firepower to assist in growth through acquisitions. Businesses need to be comfortable with scrutiny during extensive due diligence, and need to provide high-quality reporting information during the period of investment. However, an equity funder will have a keen focus on an exit horizon that


The AIM market is showing significant signs of improvement with transaction volumes up nearly 40% in 2013. The resurgence of AIM is very much welcomed as an additional funding option for a wide range of businesses including early stage, venture capital backed as well as more established companies, who join AIM seeking access to growth capital.


Opportunities for SMEs but getting the right funding partner is key


Despite caution being exercised by SMEs to securing external funding, the opportunities to be gained from loosening the reins could outweigh the risks. Given the improving mood of the overall economy, understanding the risk/return characteristics of different funders is a starting point and entrepreneurs should expect to be thoroughly challenged by their preferred funder on all the assumptions implicit in their business – preparation will be vital. However, limiting growth in the current environment risks curbing the performance of the overall economy.


Details: Kirsty Sandwell 01293-591727 kirsty.sandwell@bakertilly.co.uk www.bakertilly.co.uk


www.businessmag.co.uk


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36