AOBP Lender Bulletin
By Joshua Elash, director at AOBP Associate Lender MT Finance
In 1776 in his Wealth of Nations, Adam Smith coined the phrase a “nation of shopkeepers”when describing the British.
The phrase rings true today. Small- and medium-sized enterprises (SMEs) are a critical part of the UK economy, accounting for around 60 per cent of private sector employment and half the annual turnover of all private sector businesses. The SME sector has suffered considerably from a lack of liquidity following on from the financial crisis. Without access to the Capital Markets (where, for example, net bond issuance by UK businesses was positive in Q1 2013 and the largest since Q2 2009) the sector is traditionally highly reliant on conventional forms of banking finance.
According to The Bank of England’s quarterly report ‘Trends in Lending’, lending levels to SMEs were negative throughout 2012. Repayment of loans from SME’s was higher than gross lending, thus net lending (being defined as gross lending minus repayments) was negative throughout 2012 and in fact has been since the reporting series began in 2011.
More recently, gross lending picked up in Q1 2013, though it still remains lower than repayments, and is thus negative.
Simply put, more is being repaid by the SME community than is being lent by the banking community to SMEs.
On a more positive note, the report points to the fact that businesses have alternative sources of finance from borrowing from banks with contacts of the Bank of England’s network of Agents reporting growing use of non-bank finance by SMEs. One such source, which has become a critical tool to fund the SME community, is short term or bridging finance.
At MT Finance we have been providing business purposes loans secured by way of a second legal mortgage over real estate assets since 2008. Throughout this time we have been delighted to have had the opportunity assist numerous businesses. Whether funds have been required to acquire sale stock, to provide additional capital to stimulate growth, for the acquisition of a company or shares or indeed to commence a new venture, we have and remain committed to providing liquidity to the SME sector.
Short term finance provides business owners who also own property swift and practical access to funds to support their businesses. One of the significant advantages of using a bridging finance loan for a business purpose is the sheer speed in which it can be arranged. As with property, some of the best business opportunities are time sensitive.
With liquidity constraints in the broader banking community continuing to impact upon the SME sector, short term finance, often available for terms of up to 18 months or longer, represents a genuine alternative to bank funding and is less costly than private equity.
When discussing the SME sector it is too easy to get engrossed in the statistics and to lose sight of heart of the matter; the fate of small and medium sized business and that of the people behind them. New business are born every day, some thrive, others fail but what is critical is that all good ideas, all sound business should be provided the opportunity to turn aspiration into achievement.