The Whole Journey – Why Reliable Delivery is Crucial in SME Finance

Business opportunities are often time-limited, and if finance is required then it is vital that a potential lender will either say “no” in as short a time period as possible – thus, giving the entrepreneur a chance to identify other sources of capital – or say “yes” with a high degree of confidence that the deal will be completed. In that respect, entrepreneurs require capital that is not only ‘available’ but also ‘reliable’ in terms of a smooth progression towards completion. This kind of reliability is not always a feature of the SME Finance market. There are many, many stories of situations where entrepreneurs have been let down at the last moment. There can never be any 100 per cent guarantees on the part of lenders, of course, but the team here at The Route – Finance is committed to ensuring that when an offer is made to a viable business, there is a maximum chance of delivery. The key to that proposition is The Route’s Private Debt Platform.   

So why is reliability so important? Well, let’s take an example from the property development sector.  An entrepreneur becomes aware that a residential block has come on the market. The apartments have seen better days and would not command a premium price if sold or rented in their current condition and layout. But there is an opportunity to refurbish the block and add a considerable amount of value – particularly as the property is in an up-and-coming part of the city. To take advantage of this opportunity – the developer must act quickly to secure capital to purchase the property and carry out the refurbishment. A price is agreed with the seller and the clock starts ticking.   

And this is where the tension begins to mount. In an ideal world, the developer will approach a lender who will, in turn, agree to fund all or part of the project. This provisional acceptance keeps the seller on side, but what happens if seven or eight weeks down the line, some aspect of the deal rings alarm bells with the lender. Then it may be called off, or amended to the extent that the terms are no longer acceptable or appropriate for the borrower.  

At this point, there is a real danger of everything unraveling. The company selling the property is understanding but may also begin to look for alternative buyers. There may be a limited amount of time to get the project back on track before another – and perhaps better funded – developer moves in.   

So why does this happen?  And more importantly, what can be done to prevent this kind of situation from occurring?   

Well, the answer to the first question is simple enough to answer. The SME finance market – including the property development segment – is still dominated by banks and specialist but traditional lenders.

The Root of the Problem   

For the most part, banks have recovered from the great financial crisis of 2008 and have largely repaired their balance sheets. They stand ready and willing to lend, but in the post-crash world, they have inevitably become more cautious. 

That caution manifests in a number of ways. To stick with property development – a sector in which The Route – Finance is increasingly active and successful –  lenders are reluctant to fund 100 per cent of projects. At the same time, anecdotal evidence from developers suggests that their lending criteria have become increasingly tight. This can result in viable deals being welcomed initially but then rejected by credit committees.  

It’s important to stress, that no one is suggesting that banks should lend to risky projects. But what can happen is that well planned and costed projects can lose out because they fail to meet criteria that aren’t immediately obvious at the time of application.  

The good news is that Alternative Finance platforms are providing a different route, in the form of generalist lenders and those who specialise in sectors such as property. Deploying variations on the peer-to-peer (‘P2P’) theme, these lenders have made new money available and they will often provide a better and more responsive service than traditional lenders. Applications tend to be processed quickly and are transparent in terms of the decision-making process from initial engagement through to completion.   

But what about reliability? Well, one test is the lender’s ability to guide the maximum number of clients along the whole journey from application to closure. This is something that The Route – Finance is committed to doing. And to date, the Route has done this very successfully.   

There are two key elements to our success. One is to have an experienced team who can identify viable deal opportunities at the outset and provide a swift “yes” or “no.”  Provisional acceptance is then followed by an intensive due diligence process that not only tests the viability of the project – including all the underlying assumptions – and also the quality of the management team. 

With other lenders, there is a chance that a deal will fail, even after a positive due diligence report, because investors (in the case of P2P platforms) are reluctant to back a complex deal or a credit committee rules that it breaches lending criteria. 

The Route is different. It is a Private Debt Platform, rather than a peer-to-peer operation. Its investors are High Net Worth individuals and they have agreed to pre-commit capital. When The Route’s team recommends a deal, it is very rare for investors to say no.   

It’s a model that maximises the chance of an SME Finance deal completing the whole journey. Reliable finance is very much the order of the day.

To find out more about The Route – Finance’s Private Debt Platform, call 020 3141 9040 


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