Raising Finance

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How SME owners can overcome major financial fears

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Clearly there are some scenarios whereby a business requires finance to keep it afloat, but we’re very much focused on the negative stigma associated with gaining financial help when your business is not in this situation.

It’s well documented that the financial crash in 2007 triggered doors being slammed in many SME faces when seeking finance, even for strong companies looking to expand. Things haven’t recovered and will never return to the way they used to be. But what has been a positive side-effect of the crash is that alternative, considered and flexible financial solutions for SMEs are becoming commonplace and have been proven to be tremendously effective.

The key words being considered and flexible. These alternative finance solutions have brought a more tailored approach to SMEs looking for financial solutions that work for their business, whether it needs to buy more stock due to seasonal demand, or is expanding production to enable growth.

The fact is that in just 12 months, more than 20,000 SMEs have benefited from alternative finance to enable them to grow. Banks and financial institutions have time and criteria restrictions that can unfortunately limit the true, full picture of a business which may mean that good, strong, growing SMEs can be wrongly pigeon-holed.

Overcoming the stigma

Over the years, use of invoice finance, loans and other financial solutions for SMEs has become more accepted. It’s recognised that founders of businesses, and/or their investors, don’t have an endless pot of funds. The crash had a negative affect on this in that many good businesses were made to think that they were doing something wrong by going to a bank for financial support. Invariably, the computer said no and therefore the negative stigma around seeking funds resurfaced.

Read more about alternative finance:

Alternative finance is battling this with its approach to finding the right solution, instead of trying to fit each business into a box. Every business is different; they have different types of clients, assets, sector quirks and seasonal demands – that’s what we’re overcoming. Slowly. And SMEs are recognising this.

A vital part of this process is for businesses to do their own research. Knowing or understanding how alternative finance works is now essential to get the right financial support.

There are some general rules when seeking finance. Here are some pointers:

(1) The business and economic outlook

Look ahead and forecast with fellow directors as this will indicate why finance is required, and therefore at what intensity and stage. For example, if it’s short-term cashflow due to an influx of demand, invoice finance solutions can be the answer. If it’s machinery or new office space, then a loan may be the answer. As part of this, check in on your competitors. See what new entrants to your sector are doing, as well as the more established businesses, as it will provide you with a realistic scope of what to expect going forward.

(2) Avoid making knee-jerk decisions

The longer you leave it, the more pressured it becomes and therefore mistakes are made. Set out a plan as early as you never know, maybe two or more new financial solutions may be -necessary in the end.

(3) Understanding your customers remains key 

Internal feedback and forecasting is extremely important and is clearly a must for every business, but what many fail to do is speak to their customers enough. This is really important to understand the demand flow from your business, but it can also open new doors and opportunities which may mean you requiring short-term funds to aid a client’s growth. Growing with clients is one of the best ways for your own business to grow.

(4) Research and advice

As I’ve mentioned, researching all the options is vital. Getting it wrong can cause many issues – so speak to people, both internally and externally. As you’ll know, there are business advisers up and down the country who will offer their thoughts and insight. But treat it as a learning process too. Don’t take the word of one person, speak to a number of trusted people and draw your own conclusions. It may mean you decide to hire a person to deal with finances, or end up outsourcing it to somebody with the right expertise.

There are some great resources out there already. For example, Real Business has a useful SME finance guide for a starting point. 

Ruth Chamberlain is UK country manager at Investly, a peer-to-peer invoice finance platform for SMEs.

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