ask the expert
How should SMEs source finance?
Alex Lynford, director of Flare Path Financial Services
There are more finance options for SMEs from both mainstream and alternative lenders today than ever before. With the benefit of this greater competition, business owners should shop around and not just decide on funding because they’ve always held an account with a particular bank or because they’ve just received a smart mailshot from a shiny new alternative lender. Shopping around means researching not only interest rates and fees, but terms and conditions, the costs and ease of exiting and whether the lender has a good reputation for dealing with bumps in the road. Otherwise, businesses might use a finance broker like Flare Path Financial Services to do the heavy lifting. Brokers are generally cost-neutral or better to the borrower because they’re mostly paid by the lender and only on successful completion of a deal. They should save money as well as time since they know where the best deals are at any given time. Do, however, ensure that your broker is regulated by the Financial Conduct Authority and is a member of the industry’s trade body, the NACFB.
Alternative finance is usually more convenient and speedier but it’s invariably more expensive. If you have the time, it’s often worth braving the lengthier processes that you have to go through when dealing with mainstream lenders. Sometimes business owners think they have no choice but to use alternative finance because they were turned down by their mainstream bank. But it could just mean that the credit appetite for that business sector at that bank at that moment was weak. Just along the high street, they could be welcomed with open arms. Brokers are good value here because they keep in close touch with banks. They’ll know which banks are hungry for what.
A common reason for borrowing proposals being rejected in the first place is a poorly put-together business plan. This is perfectly understandable because an SME will be an expert in its field but not necessarily in financial presentations. I established Flare Path after a career as a business banking lender so helping put together proposals in a format and language that a bank understands and needs is all in a day’s work and part of the free service. If a business is determined to go it alone, I’d offer best wishes and a few golden principles. Don’t assume that the reader understands your business. (Your own bank manager might but perhaps not the credit committee that also reads about it.) So, explain precisely what you do, how you generate revenue and where you’re positioned in the marketplace. Don’t be fluffy or verbose. Numbers are more important than words to a banker, so lead with clearly presented financial information and use words to supplement them. Be honest about significant problems and don’t wait for them to be discovered by the bank. Explaining how the finance will be deployed, and very methodically how it will improve the profitability needed to repay the borrowing, will warm up your lender and will also be a worthwhile exercise for you.
Alex Lynford is a director of Flare Path Financial Services, an FCA-authorised firm which sources commercial finance and provides consultancy services to trading and real estate businesses. Flare Path prides itself on both in-house experience and a wide network of industry contacts to achieve quick and effective outcomes for clients.
IF YOU HAVE ANY QUESTIONS ABOUT YOUR BUSINESS FINANCE just call Alex on 07950 787690 or email al@flarepath.co.uk The Royal Borough of
Kingston
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