ART Business Loans Navigating a route to better borrowing

Dr. Steve Walker, CEO, ART Business Loans

For many SMEs, the challenges of the Covid-19 pandemic meant that they were forced to switch into survival mode, using up cash reserves and / or borrowing funds to simply stay afloat.

Businesses that had to borrow to survive lockdown may now be seeking funds to either accelerate future growth or to refinance their pandemic loans - perhaps having optimistically borrowed over a shorter period.

It’s crucial for every small business owner to adopt a thorough and robust approach to taking on new debt - and have a clear understanding of the pitfalls to avoid.

Businesses might not be able to produce the level of figures and forecasts being demanded by lenders post pandemic, and smaller loan amounts are not always as attractive to major funders.

Post-Covid, SMEs have been turning to alternative lenders who, for the first time, now account for over 50% of the loans made each year to SMEs in the UK. These include those that operate solely online. It’s easy to see the rationale for this - decisions are quick and convenient online, and can provide fast access to finance.

When using some online lenders, depending on circumstances, interest rates can be very high, reaching well over 30%. Couple this with short payment terms, which in some cases can be as little as two years, and there

“For those SMEs facing a financial dead-end, a relationship-based approach that is built on transparency and viability can provide an important route to long-term financial securitywith no short-cuts...” can be a lot of pressure on cashflow, with businesses struggling to make the repayments.

As a lender, ART is seeing a growing trend - with an upsurge in demand in the last quarter - of organisations coming to us for refinancing in addition to larger loans geared to growth. This may be because businesses can’t meet the requirements of their original loan and are struggling to obtain funds from banks or other finance sources, even if seeking a new loan to support growth.

Not every lending request can end in a ‘yes’. But for those SMEs facing a financial dead-end, a relationship-based approach that is built on transparency and viability can provide an important route to long-term financial security - with no short-cuts. This is where Community Development Finance Institutions (CDFIs), like ART Business Loans, can help.

CDFIs are prepared to lend in three key scenarios:

1) when other lenders say ‘no’;

2) when other lenders have already lent all they can; or of CDFIs across the country, many operating in targeted geographic areas, can be found at www.findingfinance.org.uk

3) when they can lend as part of a package alongside other banks or finance sources.

Crucially, CDFIs can say ‘yes’ because they take a people-centred and relationship-based approach when supporting businesses - with a deep understanding of the organisation, and the financial support it needs to thrive.