36 banking
Alternative funding for SMEs
Lending to small businesses has fallen again in the three months to the end of June 2014, despite banks taking funds from a scheme, 'Funding for Lending', offering incentives to do so, writes Jim Meechan, consultant, of Pitmans LLP
The Funding for Lending scheme was revised in January of this year to focus on loans to small firms
The Bank of England reported that institutions cut their lending to small and medium enterprises (SME’s) by £435 million in the second quarter, including repayments, following a net fall of £719m in the first three months of 2014. In addition lending to large corporations fell by a net £3.47 billion, some of which was caused by a decline in commercial real estate loans.
The reduction is against a back drop of banks taking an extra £3.2b from the Funding for Lending scheme, the Bank of England’s programme to provide money at cheap rates that can then be lent out in the hope of lifting the economy.
The emergence of alternative methods of funding available to SME’s and larger corporates alike has thrown up a couple of interesting alternatives recently
The Funding for Lending scheme was revised in January of this year to focus on loans to small firms ending the use of Funding for Lending cash for mortgages amid concern that the influx of cheap money into home loans was overheating the property market.
The Bank of England commented that overall corporate credit conditions are improving, once banks that are not participating in the new phase of Funding for Lending are included. They further concluded that some of the weakness in bank lending to smaller businesses which has persisted despite the fall in bank funding costs may reflect weaker demand.
The emergence of alternative methods of funding available to SME’s and larger corporates alike has thrown up a couple of interesting alternatives recently.
Entrepreneurial business owners know that expansion is key. But the old adage says, you need money to make money
It was reported in August that one of the Thames Valley’s prominent suppliers of “furniture“ secured £6m from Business Growth Fund (BGF); the funding will allow the company to accelerate a roll-out expansion of new stores across the UK as well as further developing it’s e-commerce platform.
Entrepreneurial business owners know that expansion is key. But the old adage says, you need money to make money – and that is where growth capital may be able to assist. Growth Capital is long-term equity funding that management teams can use to execute their strategic plans such as site roll out, product development or for building the sales and marketing infrastructure a business needs to fulfil its potential. So if you are a management team with a good track record, a proven business model, are privately owned with a turnover of between £5m-£100m, it may be worth a look – unless that is you are involved with financial services or property – in which case you will need to look at other alternatives.
Another alternative source of funding that Pitman’s was directly involved in was through Roger Gregory one of our corporate partners. This time it was a retail bond for clients who are bed and furniture
www.businessmag.co.uk THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – OCTOBER 2014 Jim Meechan
manufacturers (not the same as above). The amount raised was £2.5m “mini-bond“ at a 7.5% rate of interest payable to investors; which is competitive when compared to bank deposit rates. The initial marketing was to the customer base of the business which was made up of around 75,000 people. This was supplemented by press advertising as well as hard copy memorandum in-store. The target of £2.5m was reached in just over two weeks. The cash will be used to assist with new high street store openings.
The company that Pitman’s assisted was debt free and needed capital to expand. Looking at this alternative to the banks allowed the owner to raise that money without having restrictive covenants on the business. The whole process enhanced the brand and protected its customer relationships.
The funding market is constantly evolving; the main source of funding always has and always will be from the banking sector in the provision of senior debt, cashflow or asset-backed facilities, however the emergence of equity investment, peer to peer lending as well as others provides some alternatives albeit at a higher cost – there is finance to be had in various guises.
We at Pitman’s have a wealth of experience in assisting clients who require access to funds to help their business to grow and will be happy to discuss your requirements and aim to assist in the most efficient manner.
Details: Jim Meechan 0118-9570220
jmeechan@pitmans.com www.pitmans.com/banking-finance/
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