Raising Finance

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Despite rise in alternative finance, most FDs still look to banks for funding

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The 2016 survey, still open for contributions, revealed in February that access to finance was low down on the modern FD’s list of concerns. This, they said, was largely due to the hurdles preventing companies from securing capital being kicked aside by the meteoric rise of alternative finance.

At the forefront of this push was banks withdrawing overdrafts without warning, which was a common problem SMEs reported to the Financial Ombudsman Service

This withdrawal of traditional streams is the primary reason that around £76bn of alternative finance is in use by SMEs at present, highlighting the favourable options out there that have helped boost the “backbone of the economy”.

Access to finance woes appear to be over, according to Britain’s FDs

The latest information from our FDs’ Satisfaction Survey, however, suggested the majority of firms are still likely to consider using a bank in the coming 12 months. In fact, out of 1,193 participants so far having taken part in the survey, 715 would be looking to their banks, while 357 would consider asset-based financing.

This echoes 2015 figures from the Bank of England which showed that net lending from banks to SMEs had increased by more than £600m in the first three months of 2015 in large part due to the government’s Funding for Lending scheme.

That’s in marked contrast to the situation in 2014, when bank lending to SMEs fell by an average of £500m every quarter.

Furthermore, increasing numbers of SMEs, particularly in the East Midlands, are opting for asset finance in a bid to fund business growth. This is according to the Finance and Leasing Association, which claimed that funding of UK business investment in machinery, equipment and software surged from 28.1 per cent to 32 per cent in two years.

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Charlotte Obahiagbon, business development director at Luna Finance, explained that an all-time high of £4.2bn is now secured against assets. She said: “The driving force behind this is the fact that funds can be provided at a cheaper rate than when utilising unsecured lending. Many bosses in the East Midlands have a large amount of assets on their balance sheet but need more cash flow.

“Essentially, asset finance is a very quick and simple route to raising capital. Fast credit decisions, easy documentation and process managed by experts in the field and quick payouts are making it an attractive proposition for more and more businesses.”

Trailing behind the use of banks and asset-based finance is trade finance, considered by 134 respondents, while 128 looked towards currency hedging. So far, only 28 would consider turning to venture capital, with 91 citing private equity as their future finance source, 30 choosing crowdfunding and 14 aiming to receive angel investment.

The full results of the FDs’ Satisfaction Survey will be unveiled at our FD Surgery event at The Royal College of Surgeons on 18 May, which is supported by Lloyds Bank, Bupa, Corporate Traveller, FCM Travel Solutions, webexpenses and WorldFirst. It means that there’s still time for you to have your say and take part in the survey – the deadline is 6 April.

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