Ultimate Finance

Removing misconceptions about 'high-risk' SMEs



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It’s not an overstatement to say that this is a very difficult time for British SMEs.

Although Theresa May announced the end of austerity during the Conservative party conference, we’re seemingly no closer to understanding exactly what Brexit will look like. It’s therefore worrying that so few SMEs had bank loan applications accepted – just 69,300 SMEs received new loans from banks in Q2 2018, according to UK Finance. Clearly, more needs to be done.

Too focused on protection

Due to the pressures facing them, many banks and lenders have been focusing on protecting themselves ever since the 2008 economic crash. Unfortunately for SMEs, this means stringent criteria are often in place and lenders may turn away prospects if they don’t meet their requirements.

Sadly, this “computer-says-no” attitude leads to the misconception that there are a large number of high-risk SMEs in the UK. This simply isn’t the case: just because a business doesn’t meet all the conditions in place, that doesn’t make it a bad business. In fact, it just means it needs help in finding the right funding partner.

Here come the brokers

Brokers offer a key support network for those SMEs that have been rejected by banks and don’t know what type of funding they require from alternative lenders. They’ll be able to offer consultancy and quickly match them to specific lenders with the appetite to assist.

For example, brokers can evaluate the assets businesses have that can be used as security for additional short- or long-term funding. Asset finance offers financial support placed against high-value assets, such as factory equipment or plant and machinery, creating a more attractive environment for lenders to work in. Similarly, unpaid sales ledgers are perfect assets to generate additional funding under an invoice finance facility. Trade finance can help bolster a company’s cash flow by helping to pay suppliers for goods set to be sold onwards and bridging finance can generate funds for SMEs using the equity in any property held. The options really are out there if SMEs work with brokers that have contacts in the right place.

High risk, high reward

By viewing “high-risk” businesses as an opportunity, brokers can create long-term relationships with potential clients by constantly adding value through high-level business consultancy. This can start with brokers connecting SMEs with credit management experts and result in them finding the funding partner that helps their business thrive. In fact, it’s likely the broker that takes them under their wing, supports them and connects them with the right lender will become the partner that the SME turns to whenever it needs help in the future. It will turn what could’ve been a one-off interaction into a potential long-term relationship that benefits all parties.

Brokers fixing the broken cycle

The pressures and uncertainty surrounding SMEs means they increasingly rely on financial support to hit their objectives. Constant rejection can sap the morale from even the most positive of working environments and by prioritising flexible funding partners with broad portfolios, brokers can offer the solution SMEs need. Doing so – while positioning themselves as an indispensable business adviser – will inevitably help everyone involved and create a more sustainable business environment.

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