“There are probably at least 300 lenders out there now, “ observes Graham Toy. “It’s great. It’s great for the economy and its great for the SME. It’s more choice and more choice has got to be a good thing.”
As Chief Executive Officer at the National Association of Credit and Finance Brokers (NACFB), Graham has seen a sea change in the lending market. A decade ago, debt finance for SMEs was the preserve of high street banks and few specialist lenders. But that has changed. Alternative Finance – and in particular, the arrival of market lending platforms – has opened up new options for small businesses. But as Graham acknowledges, a multiplicity of choices has created its own challenges. Put simply, sometimes it’s difficult to see the wood for the trees.
“If you’re the widget maker, you have no idea how to access that or where to even start,” he adds.
The truth of the matter is that relatively few business owners have the time – and perhaps the inclination – to carefully study the growing range of debt finance options that are open to them. And yet, it is hugely important, not only that they can find finance but also that they find the right and most appropriate financier.
This has arguably enhanced the importance of brokers who – on behalf of their business clients – research the funding ecosystem and establish good working relations with lenders. Their accumulated knowledge of the market plays a crucial role in helping SMEs find the most appropriate sources of debt finance.
It is vital work, not least because traditional lending hasn’t totally recovered from the shock of the 2008 financial crisis. Banks have made real efforts to continue to support the business community but many viable small and medium-sized companies still fall outside their lending criteria, perhaps because the proposition is complex or unusual.
Steve Johnson, general manager at broker Westbourne Corporate Finance, has seen the impact of traditional lender caution at first hand.
“There are so many businesses that can’t get mainstream finance on complex deals,” he says. “They can go to their mainstream, their high street banks or even secondary or tertiary tiers within the banking structure and the finance just isn’t available for them. It really isn’t. The deals are good, the people are good. The equity and the proposals are good, but there just isn’t a listening ear or a ready ear to do business with.”
Against that backdrop, he sees the presence of dynamic and responsive alternative finance community as being crucial to the health of the SME community.
But the challenge remains. It may well be the case that alternative finance platforms will take a more flexible approach to lending, but each one is different. So what factors will prompt a broker to recommend one platform over another?
The decision may be dictated by the positioning of the lender. For instance, some platforms are generalist while others specialise in specific sectors, such as property. However, while the preferences of lenders – and their track record in certain sectors – will certainly help to narrow the field, there are other factors at work.
Speed of Decision Making
Speed of decision making is a case in point. “I think one of the most important things is that a lender will review the case and the information thoroughly and give a quick decision whether yes or no upfront,” says Richard Jones, managing director of broker, Pilotfish. “And if it’s a yes, they’ll follow through and deliver with that. And that’s what we’re looking for in our lenders.”
Steve Johnson says lender engagement also an important factor, coupled with an ability to see the opportunity. “The ability to look under the covers, I would say to want to get to understand a deal. To want to get to understand the complexities and intricacies of the deal with a view to doing a deal. It’s so easy for a lender or an investor or a funder to say no, it doesn’t work for us.
The alternative funding market is about more than that. It’s about seeing a kernel of hope or truth or possibility in a deal and finding a way to do that deal. And without that intelligence from a lender or a funder, then it just doesn’t work for us. We just need that to be in place.”
The Route Approach
As Steve sees it, the approach taken by The Route – Finance indicates a commitment to genuine engagement and a willingness to assess each application on its merits. “I think the individuals at The Route are very good at what they do. They’re very open minded. If they look at a deal, they take the time to understand that deal from their perspective before they make a decision on whether they’re going to do it or not. Once they commit internally to doing a deal, they do everything they can to structure it in a way that it can be done,” he says.
“They are different from other lenders in that they push the boundaries on what they’re prepared to lend,” he says. “They are prepared to work with clients that the traditional lenders perhaps won’t. Or lend more money against projects, or undertake projects that some of the other lenders – the main high street banks, for example – aren’t prepared to do.”
And that is very much the essence of Alternative Finance. If the platforms established over the last seven or eight years were simply replicating the work and approach of traditional lenders, it’s arguable whether they would have gained traction so quickly. The best lenders – including The Route – Finance – have not only created new sources of capital but they have also brought fresh thinking and new lending criteria to the market. This has increased the options open to SMEs while making the job of introducers ever more important.
To find out more about business loans from The Route – Finance call 020 3141 9040