Bibby beats banks to top factoring table for SME funding

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Earlier this month, the business finance publication, Business Money, published its annual receivables review league table, showing Bibby Financial Services as the market leader in relation to factoring assignments for 2015.

What this means is that we funded more debt than any other Factoring provider, freeing up our clients’ cashflow and helping them to grow.

We were also ranked second in terms of client numbers, seeing growth during a time where most other invoice financiers in the top ten saw a decline in the number of businesses they support.

It’s been widely reported that the landscape for SME finance has changed significantly since the end of the financial crisis. Asset based finance providers have taken on a bigger role in the funding of SMEs as the banks have tended to retreat from the market, due to tighter liquidity and capital requirements imposed following the financial downturn.

As a funder with a rich history of financing SMEs over 34 years and as part of the 200-year-old Bibby Line Group, it’s often been said that we have the expertise and financial backing to compete with bank-owned invoice financiers. But what Business Money’s receivables review reveals is significant. Not only are we competing with the banks’ invoice finance arms, we’re the first non-bank funder to lead the industry for a generation.

A relationship-based approach to funding

Throughout 2015, we continued to operate alongside a small band of established financiers that were able to grow their funding support in the face of new, online competition. We take a relationship-based approach to funding and – while we continue to invest in technology to enhance the way in which our clients can access the funding we provide – the service we offer is based on the relationships we have with the businesses we support.

We take a human approach to assessing risk and work hand-in-hand with our clients and intermediary partners to ensure that they have access to local decision makers and relationship management teams. In my view, it’s this that sets us apart from other funders in this space and is the reason for our continued success in the face of new competition.

While we have long been associated with funding smaller SMEs, in recent years – through the expansion of our product portfolio and formation of our Corporate Finance team – we now support businesses of all shapes and sizes across more than 300 industry sectors.

Examples like our funding for global car-care manufacturer, Turtle Wax; leading distributor Ripmax and more recently our support for investment company Valtegra’s acquisition of two UK-based manufacturers, demonstrate our capability in the Corporate financing space.

Today, through our growing product portfolio, including factoring, invoice discounting, lease finance and specialist finance for the construction and recruitment sectors, we support over 7,000 UK businesses. And with the launch of our new Foreign Exchange proposition to existing clients, this year, we’re continuing to bolster our support for UK PLC.

These results are testament to the commitment, drive and tenacity of our teams throughout the country, in addition to the support we continue to receive from our intermediary partners. This has taken us over 30 years and it’s been a great journey so far. I am excited about the future and for this reason, I’d like to offer a personal thank you to all our staff and partners for making this possible. Here’s to the next milestone.

SME Referral Scheme: why the wait?

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In its Small Business Finance Markets report published earlier this month, the British Business Bank (BBB) found that “over half of UK smaller businesses still go only to their main bank and do not shop around for finance.”

While choices available to SMEs have increased significantly in recent years, there is still a distinct lack of awareness of the full range of funding options available among many small business owners. It’s perhaps for this reason that the Government and BBB’s mandated referral scheme drew so much attention when it was announced two years ago.

First mooted in the 2014 Budget, the Government laid out plans to consult on legislation to help SMEs that have been rejected by banks to get the financing they need. Later that year, a list of ten banks were drawn up which would be required to refer SMEs on to other funders, should they be unable to support them.

Fast forward from its announcement in August 2014 to now, and we are still waiting for the scheme to be launched. The latest delay now suggests that the scheme will launch in the latter part of the year.

There are always going to be a number challenges and barriers to overcome when looking to strike-up dialogue between different public and private sector organisations. But if both SMEs and the wider economy are to start benefiting from the scheme, this dialogue is critical.

From what we understand at this stage, the next step is for the BBB to provide the Treasury with “full advice by the spring”.

What this “full advice” actually entails remains to be seen. However, with Spring fast approaching and the need for the Treasury to review and feedback, this leaves little room for the platforms and legal processes to be fully developed, tested, improved and then finally launched any time soon.

Of course the biggest losers from this delay are SMEs. For them, the delay hinders their ability to access a wider range of financing options.

According to research on behalf of the BBB in its ‘SME Journey Towards Raising Finance’ survey in 2014, two-thirds of SMEs only go to one provider when seeking finance and almost two fifths (38%) appear to give up their search for finance after their first rejection.

With the big four banks still dominating the SME lending market, for a third of businesses that are declined funding, there is no signposting of where to look next. It is this lack of direction and compass setting that desperately needs to be fixed.

Plugging the gap

While we await a government-led referral scheme, spearheaded by the BBB, private sector organisations are stepping up to the plate to plug the gap. Just last month, we announced that we had joined Alternative Business Funding.

Since it first launched in 2014 – around the time the mandated bank referral scheme was first mooted – the ABF has received more than 30,000 visits to its website, resulting in several thousand SMEs finding the funding they need.

While the Government and BBB continue to develop the schemes proposition, it is the private sector – and a collaboration of providers right across the funding spectrum – that is stepping in to fill this void, helping SMEs to obtain the funding they need to grow.

If such collaboration between funders can be reached in order to match the needs of SMEs, it’s surely just a matter of time before the BBB led-scheme is launched.

Until this time, however, SMEs will do well to note that there are services available that are already helping small and medium sized businesses to access the finance they need to grow.

Attitudes Towards Enterprise

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The Government published its Enterprise Bill on 17th September, which aims to cement the UK’s position as the best place in Europe to start and grow a business. Measures in the bill include reforming the Business Rates Appeals system so that it is more transparent and easier to understand, shifting and reducing the regulatory burden on businesses and extending the Business Impact Target to include regulators. It will also change the way that the term ‘apprenticeship’ is applied.

But the measure that caught everybody’s eye – mine included – was the commitment to create a Small Business Commissioner.

The imbalance in bargaining powers between the smallest of businesses and large firms can be damaging. I’ve written before about the implications that late payments and killer clauses can have on SMEs, so it’s good to see the Government taking measures to combat these imbalances directly. It seems to have recognised and acted on the fact that small businesses often lack the money, expertise and confidence to challenge practices they believe may be against the spirit, let alone the letter, of the law.

The Small Business Commissioner should act as a friend to smaller businesses, helping them to resolve disputes quickly and easily whilst simultaneously providing advice about preventing future issues involving dispute resolution, late payments and contract principles.

The Commissioner is yet to be appointed but they will work closely with Small Business Minister, Anna Soubry. Ms Soubry has been very vocal about the Commissioner’s role and has emphasised her desire for them to pick up the phone and speak directly to CEOs of large firms. Ms Soubry has also asserted that the Commissioner will have the power to name and shame larger businesses who aren’t playing ball. Although this is a last resort, it demonstrates the seriousness of the Government’s commitment to crack down on unfair treatment of small businesses.

Looking abroad for inspiration

Elsewhere, the US has a government agency dedicated to maintaining the wellbeing of small businesses. The US Small Business Administration offers a wide breadth of advice on starting and managing a business, contracting, combatting fraud and also offers extensive loan programmes. The agency summarises its activities with three Cs – capital, contracts and counselling. Having boldly championed smaller businesses for over fifty years, the dividends of this approach are surely self-evident in the world’s most entrepreneurial country.

A country still in the teething stages of dispute resolution development is Germany, which proposed a draft bill early last year with the intention of implementing the EU 2011 Late Payments Directive into national law. Germany is famous for its powerful ‘Mittelstand’, which is hugely productive and has fuelled the country’s growth. By actively acting against late payments in consumer transactions, they are turbo-boosting their position as one of, if not the best countries for SMEs in the world.

The UK may be slightly late to the party when it comes to championing SMEs but for my part, the movement to bolster their voice is laudable and one which I think will be valuable. With the efforts of the USA and Germany for guidance, the UK Small Business Commissioner will be able to learn from its international counterparts and rely on the support of British businesses that want to see this new position wield the power it needs to get SMEs the fair deal they deserve.

For my part, anything that seeks to challenge the culture of big businesses mistreating their smaller partners is to be welcomed.

Keep a weather eye on the global climate

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Clouds gathering over the global economy have implications for all businesses. From small wholesalers to the largest corporates, no business is fully immune to the effects of a global downturn.

I’ve cautioned for some time that another economic slump could be on the horizon and there are a number of significant challenges for nations across the world to contend with.

Recent ripples emanating from China have pushed this train of thought to the fore as the Asian giant’s stock market slide on “Black Monday” caused markets all over the world to wobble.

China looks vulnerable for the first time in years. Could growth be over stated? Might the stock market and currency be overvalued?  Only time will tell.

Earlier this month, The Independent reported that Samsung is to cut 10 per cent of its staff at its South Korean headquarters and the outlook of SMEs in Singapore has hit a three-year low with weaker sales predicted across all sectors according to the Singapore Business Federation.

Closer to home, the Greek crisis is far from abating as the country plans snap elections later this month, which could have profound consequences on the European economy if the third bailout deal is reversed.

Add to such concerns uncertainty over the UK’s place in the EU – and questions over the timing of interest rate rises – it’s plain to see that a lot could go wrong over the months ahead, any of which could have adverse effects for SMEs.

I was intrigued as to why the noises from the Bank of England discount the impact of volatility in the Far East and focus on the threat of inflation above 2% domestically. I do wonder if  this is simply talk to prevent excess rather than a real desire to raise rates. Who knows?

I believe that there is underlying inflation masked by weak oil prices. However, when unmasked, demand may drop due to overseas forces. This could dampen down inflation by another means. For my money a rate rise would need to be small and cautious if it comes at all this year.

Preparing for the worst

Homing in on the market for SME funding, there appears to mixed signals about how they are faring amid this macroeconomic fog.

The Bank of England reported in June that loans to non-financial businesses decreased by £5.5 billion on an annualised basis.  This marks the biggest drop since the bank started collecting data in 2011. Probing the data further, it reveals that lending to all SMEs actually remained flat, while the contraction took place among larger companies.

Yet flat lending figures appear to have done little to dampen the confidence of SMEs in the UK. The Federation of Small Business (FSB) recently recorded the highest ever number of firms planning to invest in their businesses. The FSB Small Business Index found that “nearly one third of businesses (32%) plan to increase capital investment over the next 12 months.”

Ultimately this means there is a mismatch between SME perceptions and reality as, based on the BoE figures, we are not really seeing the kind of increase in business lending that could likely sustain the significant spending and investment they anticipate.

The squally economic and regulatory weather means that SMEs will be well advised to be careful who they borrow money from. Larger funders have a habit of doing the hokey cokey when it comes to the SME lending market. They’re in when it’s all good and out when the sun stops shining.

Credit appetites are being stretched and margins compressed, and this is a sure sign that when growth slows the economic impact will be painful. The longer things take to turn, the more painful things will be. Working with relationship-based funding partners with track records of growth during recessions is where SMEs will fare best.

Only time will tell how this melting pot of global challenges will impact SMEs. It’s for this reason that businesses should hope for the best and prepare for the worst and this involves making sure their cashflow is in order, sooner rather than later.

Why P2P lending is not a silver bullet

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The myth of the P2P panacea

I am in favour of anything that increases choice and enables the UK’s SMEs to access the funding they need to grow. The peer-to-peer (P2P) lending market has grown substantially since the first provider, Zopa, arrived in the UK in 2005, with the market surpassing the £1 billion funds advanced mark by the end of last year. To be clear, this is the total of all loans and not the funds-out at any one time.

Unlike many traditional funders, however, new players on the financing spectrum have been welcomed by government and policymakers alike, without so much as a hint of caution. Politicians, particularly, have viewed this newly emerging sector as a panacea that will shake-up the market and solve the funding needs of small businesses forever.

Moreover, it has been branded by some as the ‘Uber of finance’, supposedly disrupting an uncompetitive or dysfunctional market that was ripe for innovation. This narrative, though appealing in its simplicity, is far from the truth.

The UK has long boasted a healthy and highly competitive alternative financing sector, which it should be proud of. But, all too often, policy-makers ignore an already mature sector; seeing competition in the market as a two-horse race between major high street banks and shiny-P2P lending platforms. They seem to love the new, just for its novelty.

But, it’s the alternative middle-ground that has proved itself time and time again. In fact, just this month the Asset Based Finance Association announced that £18.9 billion was lent to businesses in the first quarter of 2015 – a £1.2 billion increase year-on-year. Through bull and bear markets, independent funders and asset based lenders have demonstrated their longevity and local presence in the UK market. This strong track record is largely ignored as it is not new. It is, however significant and most importantly, it provides real support for businesses when they need it. It did so right through the last recession and helped prevent the downturn being even worse.

The limitations of youth

Despite the halo effect surrounding new market entrants, these platforms still account for only a tiny fraction of SME lending in the UK. Furthermore, funding amounts advanced to SMEs are limited and cannot yet satisfy the full range of business needs.

Notwithstanding its attractiveness to media and government alike, awareness of this lending option is generally low among business owners. Our quarterly SME Tracker found that just 1% of SMEs used P2P or crowdfunding in Q1 and half of the small businesses we surveyed for our SME Manifesto in May said that they would not use a P2P lender.

It’s evident that many do not share policymakers’ enthusiasm for these lenders and  owners and decision-makers explained that they either distrusted P2P lenders or felt they would not be able to get the financing that would be right for their business through this channel.

Apples and oranges

A fundamental problem with debating comparable merits of different funding types is ensuring comparison on a like-for-like basis. A P2P lender provides funding pure and simple – not credit control, sales ledger management or payment collection. Many can’t offer multi-lingual or multi-currency services, helping businesses to enter new markets or import goods from overseas.

Fundamentally, P2P lending is more about delivering an investor return than the provision of funding and services to small businesses.

Strong funder, strong future

Looking ahead, the UK faces a referendum over its membership of the EU and a tough monetary policy decision on when and how interest rates will change. As recent years have proven – we are never too far away from the possibility of a return to recession. It will be fascinating to see how the market fares through the whole economic cycle. The lack of a capital buffer may expose unwary investors to more risk than they bargained for.

I wish all lenders well and believe there is room in the market for us all. What we do need is more balance when it comes to evaluating options.

Earlier this month, our research found that 14 per cent of SMEs use loans from friends and family to fund their business with a quarter (23 per cent) using a bank overdraft. As this period of political and economic uncertainty continues, SMEs must future proof themselves from financial shocks by ensuring that they have sustainable and flexible sources of funding, tailored to their needs. This could be a combination of financing types, including overdrafts, leasing, loans, invoice finance or even P2P.

However, we must recognise that financing in 2015 should have a wider purpose beyond simply offering a lump-sum. Funders have a larger role to play in society – managing relationships with customers and suppliers and helping small businesses position themselves for growth.

It is here that a finance provider can become an extension of an SME’s own team; a role that many independent funders are proud to play.