One of the most serious and long-term effects has been the significant decline in risk appetite from some of the traditional funding channels which previously helped SME businesses develop, and put themselves in a position to grow and diversify.
But that very crisis has resulted in new viable sources of finance
The taps which previously supplied the funds for many SMEs to achieve the growth they strive for, namely the mainstream banks, have all but dried up, says Björn Lindvall, the CEO of CreditSquare.
Having worked for two large international investment banks for many years, Mr Lindvall saw first-hand what could be achieved when the focus was switched away from hard, tangible assets – which is what high street banks are mainly interested in, he says – to cash flow generation of a business and what borrowing that can support. However, alternative lenders who have a different focus and risk appetite to the high street banks are less well known by many entrepreneurs and business owners in the UK. “This meant many businesses has difficulty accessing funds which are undoubtedly there, but which, because they are controlled by smaller credit funds, family offices or smaller, challenger banks, do not have the resources of a large high street bank to promote themselves,” he said.
“Realising that not many entrepreneurs know who those alternative funders are, or indeed what a business need to supply them with in terms of information when applying for a loan, we have built strong relationships with those funders in CreditSquare. We are also happy to roll up our sleeves and really get to know a business.
“Once we have properly understood hwo a particular business works, we can present information about a business, and what it needs to grow, in the right way so that it can be put in front of the people making the decisions on behalf of the lenders.”
It may all sound inaccessible and cumbersome – but, adds Mr Lindvall, it’s no different from selling one of the products your business supplies to a client – you have to be prepared, have the right sales material and know who to talk to at what firm. And of course, these fund managers go about their business very discreetly. Essentially, they’re looking for sound business propositions, which show the potential to repay the money which are lent to them.
“Some lenders have particular expertise in one or a few fields, and are specifically looking businesses to support in those industry sectors,” says Mr Lindvall. So, in many cases, it doesn’t matter how ‘niche’ your product or service is, these non-mainstream lenders are managed by people who understand the market you’re operating in.
Another change in the high street banks’ behaviour since the financial crisis of 2008 is that they do not like to finance companies that are experiencing any form of change. Change can be a shareholder re-organisation, a Management Buy Out, Management Buy In, corporate acquisition or simply financing a steep growth curve. “Nearly every successful business has to undergo a transition phase at some stage,” says Mr Lindvall. “Explaining the options available to you, the best route to achieving your desired outcome, and most importantly, how to find sources of the funding needed to ensure that you do this successfully, are what CreditSquare does very effectively.”