Efficient business. Efficient Britain.

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The results of the latest SME Confidence Tracker report show that the final months of 2016 were a time for collective belt tightening and falling investment as rising costs started to take hold for many businesses in the UK.

Prior to the referendum, just one in 10 SMEs cited rising costs as their biggest challenge. In the final months of the year, this had more than doubled. As input costs rise due to a weakened pound, there are renewed fears that stagflation may be around the corner.

Economic think-tank, the National Institute of Social and Economic Research has predicted that inflation will hit 4% this year. I am doubtful that it will reach such heights, but we are undeniably in for a time of price rises. There are significant warning signs already and in December, inflation reached 1.6%, up from 1.2% in November.

This will undoubtedly affect consumer spending, impacting businesses throughout the country. As a consequence of rising input costs, many SMEs now face the conundrum of how to uphold profitability while remaining competitive with their counterparts overseas.

As prices rise, business investment is falling. Our final report for 2016 highlights the scope of this drop. In Q2, the average planned investment amongst SMEs was £101,919. This has more than halved to £49,237 for the first three months of 2017. Planned investment from manufacturing businesses fell by 150%.

Competition was also a key concern for businesses in our research. Behind rising costs, increasing competition was the greatest challenge for UK PLC.

While we await specific direction on the UK’s future relationship with the EU, now is the time for SMEs to look towards efficiency to boost competitiveness and offset cost pressure. But what is business efficiency? There is a common misconception that it means cost cutting and contraction.

What efficiency really means in the context of SMEs, however, is optimising allocated resources in the best way to operate effectively. It involves making assets work harder in order to achieve sustainable business growth. This could include reviewing supply chains, production methods or routes to market. It may also mean considering different sources of funding, overseas trade, how to improve credit control processes or using new transactional technology.

Whatever the case, as the uncertainty of economic events of the past year seep into 2017, now is a good time for businesses to reflect on what they can do better. To consider how they can put themselves in the best possible shape for the year ahead.

While the headlines continue to focus on big business, international trade agreements and the UK’s disentanglement from the EU, it’s UK SMEs that will drive the economy forward. For Theresa May and her Cabinet, amid potentially significant price rises and ‘hard-Brexit’, the mantra for 2017 should be ‘efficient business, efficient Britain’.

Read the SME Confidence Tracker in full here.

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.

Transactional funding and the art of building relationships

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We’re living in a time of exciting change where the word “digital” is on many lips. A recent internal presentation from IBM declared that “digital disruption has already happened” given that Uber is the world’s largest taxi company without owning any taxis and Airbnb is probably the largest accommodation provider without owning any properties. What sets these digital services apart is that they do not seek to replace people with technology. They simply utilise technology to enable consumers and providers to connect more easily.

So, how does this digital world impact the SME finance market?  There is a common view that SME owners are happy operating digitally and received wisdom goes that digital means no people, no relationships and a world where everything is rational and transaction based. But the SMEs I speak with value the relationships they have with their funding partners and ask that they’re not kept at arm’s length through digital means.

I believe that successfully funding businesses and helping them to grow in the long term is  much more about relationships than transactional lending. For funders such as Bibby, it’s about taking a relationship-based approach to supporting our clients. Of course, this means providing innovative and up-to-date systems to support this, but it also requires personal communication – the kind a machine built solely for transactional interface simply can’t perform.

But for now it seems that many technology platforms see the trajectory as heading towards a more formalised model of online lending that involves less people.

What I sense is that when a company uses digital means to enable greater people contact in a way that is easy and simple, prospective clients will be happy to embrace the change. The implication for me is that this will not be a ‘rules based’ or ‘tick-box’ approach  but rather, it will need to embrace the flexibility of decision making based on the experience of people, facilitated by technology.

Understanding your customer and their needs is as important as ensuring the right level of funding arrives in their account at the right time. At this stage in our digital progression, we cannot lose sight of the positive role people play in guiding SMEs towards achieving their goals.

At Bibby, we are proud to be in The Sunday Times’ Best Companies to Work For as we feel this is testament to the emphasis we place on the relationships we have with each other and our clients.

For now digital-only platforms are operating in one corner of the market. If they want to move beyond transactional services they will need to provide a greater service to SMEs, a service we believe can only be enhanced through relationships between real people.

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.

The waiting room of change

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From the outset, the newly elected Conservative Government made its ambition to nurture small businesses clear.  In Sajid Javid’s first speech as Business Secretary, he said that “small businesses are Britain’s engine room and the success of our whole economy is built on the hard work and determination of the people who run and work for them”.

Meanwhile in a signal of the Government’s specific commitment to small business, Anna Soubry’s role was re-named Minister for Small Business, Industry and Enterprise – instead of the broader version of Minister for Business and Enterprise.

Since then, the Government has started the ball-rolling on a number of initiatives which could be transformational for small businesses. Through the Enterprise Bill, the Government intends to create a new Small Business Conciliation Service to “help settle disputes between small and large businesses, especially over late payments” without the need for legal action and to appoint a Small Business Commissioner to  “help small businesses handle disputes over late payment and other supply chain practices that hit them especially hard”.

These steps have the potential to free small and medium sized enterprises (SMEs) from their chains and stamp out chronic problems which have hampered their growth.

These strong announcements in May and July are wending their way through Parliament as part of the Enterprise Bill. But Royal Assent can’t come soon enough as small business owners and decision-makers are really feeling the pinch. SME leaders are shockingly depressed about the outlook for their business: according to our SME Confidence Tracker, less than half (46%) of SMEs expect their business to grow. Meanwhile one in five small business decision-makers say that the uncertain economic environment in the UK is their primary reason for holding off on future investment.

Against this stark picture it is clear that SMEs need reassurance about their economic future, with the Government and policy makers providing as much ‘forward guidance’ as they can to give certainty to SMEs’ 2016 and 2017 business plans.

An area ripe for action is exports.  With only 1 in 10 small businesses exporting according to our Tracker, it’s time for more work in this area. The EU referendum will be pivotal as it is beyond doubt that exporting is easier because of the EU. Time will tell whether that is enough to help sway the vote.

The latest ONS Annual Business Survey figures find that the number of UK companies selling goods and services abroad decreased last year. We need to reverse this trend if the UK is to compete on the global stage. This requires a combined effort of ambition and imagination by both SMEs and the Government.

As they wait for the Enterprise Bill to become reality, small business owners occupy a strange sort of purgatory – the waiting room of a possible metamorphosis. The Government stands on the brink of positive reform, but in the meantime, it must reassure and comfort small business owners, who are overwhelmingly depressed in their outlook and sensing dark clouds on the economic horizon.

The threat (promise)of interest rate rises is likely to act as a drag anchor to any positive policy statements as business leaders tend – in the most part – to be a cautious bunch.