According to the British Business Bank’s latest Small Business Finance Markets report, a large proportion of UK SMEs expect access to funding to become more difficult following the UK’s departure from the European Union.
SMEs are a critical part of the UK economy, accounting for around 60% of private sector employment and half the annual turnover of all private sector businesses but many have struggled from a lack of liquidity following the financial crisis, amalgamated with uncertainty surrounding Brexit.
Banks have been particularly wary of lending to smaller businesses, concerned that a no-deal Brexit could result in a slowdown of the economy and impact on their ability to pay back loans.
However, over the past decade, there has been significant developments from the alternative finance industry that have given SMEs a wider choice of ways to finance their aspirations. Today there is a whole range of non-bank funding solutions successfully lending to small businesses and one such source that has become a critical tool to fund the SME community is bridging finance.
There is an array of instances where bridging finance is the ideal solution for companies needing quick access to funds or to plug a gap that traditional lenders are unable to fill. Whether funds are needed to acquire stock, to facilitate a new venture, or provide additional capital to stimulate growth.
As an example, MT Finance was recently approached by a client who owned a successful textile manufacturing company and as part of his growth strategy, was looking for funds to help him acquire a similar company.
As part of the acquisition, the client was able to take over an existing contract for materials and products from Southeast Asia, including a shipment that had already been approved and prepared. However, the sellers had a specific completion date which meant the client needed to move quickly to take advantage of the opportunity.
He had attempted to borrow against his main residence, valued at £950,000, which had an existing first charge mortgage of £295,000. However, his existing mortgage lender was unable to provide additional funding against the property in the time-frame required. Due to time sensitivity, the client’s broker contacted us straight away.
On receipt of the enquiry, we were able to give an immediate decision and issued the offer in principle that day. As we were faced with roughly 2 weeks to deliver the funds, we immediately instructed the valuation at the same time as going to offer.
In just 13 days, we provided the £275,000 second charge bridging loan, at 60% LTV, based on the current open market value of the client’s property. Interest was retained at 0.85% over 12 months, with no exit fees or early repayment charges. No personal guarantees were required.
Our bridging loan meant the client was able to complete the acquisition by the specified completion date and capitalise on a fantastic investment to his business. Within 9 months the client was able to show a trading pattern and increased income that allowed him to raise funds to exit our loan.
For those SMEs relying on traditional bank loans for finance means there’s a large segment of the SME community that isn’t benefiting from access to funding when they otherwise should be. Alternative finance products such as bridging loans, crowdfunding, and invoice finance can help business owners access the most appropriate finance for their needs from this more diverse market.
It’s certainly been a tough time for business owners over the last decade, but as traditional lenders fail to meet expectations, alternative lenders are indeed stepping in to meet the needs of SMEs. MT Finance is committed to supporting the SME sector- since 2008 we have been delighted to help UK SMEs invest in manufacturing, technology, and development of their businesses.
For more information on how we could help support your business, call us on 0203 051 2331 or fill in our contact form and a member of the team will contact you shortly to discuss your requirements.