Industry Insight
The long view Consolidating debt and leveraging personal assets Josh White Business Lending Lead Selina Finance
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mall businesses have had to navigate some extremely difficult situations in the past 24 months, and 2022 has only brought new challenges, with the war in Ukraine exacerbating supply chain issues that we had seen growing over the last year. But SMEs remain crucial to the economy. They account for 99% of all UK business and are key drivers of productivity and economic growth, so how are they faring in the current business climate? A third of SMEs examined by the Bank of England recently showed debt levels more than 10 times their cash balance. Cash reserves are unsurprisingly much lower for businesses than witnessed before the pandemic, across a variety of sectors. As we begin to see the winding down of the government’s Recovery Loan Scheme and CBILS loans begin to exit their interest-free periods, businesses are having to rethink how they finance their growth. ʻGrowthʼ is definitely the key word here. Across the market, businesses are seeking finance to grow rather than simply to keep themselves afloat. Unfortunately, the lending market has still not returned to where it was pre-pandemic in terms of credit availability for SMEs. In my opinion this is driving a trend towards businesses seeking out longer-term and more affordable funding arrangements. It doesn’t take a rocket scientist to understand that for SMEs to 44 | NACFB
thrive in a post-COVID world, funding needs to be more flexible. Fortunately, options for borrowing are increasing – the Bank of England has eased its regulations to challenger banks and a number of new banks and fintechs are popping up giving SMEs access to new types of funding. At Selina Business, we have seen an increasing number of businesses eager to reduce their cost of borrowing and wean themselves off of the high-interest, piecemeal financing options which they have relied on to navigate through a difficult few years for the economy. This type of finance has its place within the wider business ecosystem, helping businesses who need to solve sudden cashflow problems or seize opportunities at short notice, but it may not be the most suitable option over a longer period of time. Desire to consolidate multiple unsecured facilities has increased too, as has taking terms of 20-30 years, reducing monthly payments to further free up cashflow for businesses in the short-term. We have also seen a major uplift in business owners willing to leverage their personal assets to secure funding which is flexible, affordable and long-term. Understandably, they are not always eager to offer up personal assets as collateral to finance their business but the advantages, especially in price, can sometimes outweigh the risks. This is only likely to increase with 87% of business owners reporting increases in operational costs year-on-year. Flexibility in business borrowing becomes more key at this point, and borrowers want something that gives them a sizeable and flexible facility at a reasonable price. This is a trend I think we’ll continue to see grow, as the economic and political climate forces businesses to take a longer-term view of their finances.
