Securing funding is a common occurrence in businesses of all shapes and sizes, enabling you to take the next step in growth and success. Many businesses automatically head directly to the bank thinking it would naturally secure the best type of funding for their circumstances. However, often this is certainly not the case with many financial lenders able to provide a more comprehensive and appropriate package which adheres to the client’s best interests.
We work with a number of financial lenders including one of our partners MarketFinance. We spoke to their COO, Steve Lomax, about securing funding, the future of interest rates, and how to put yourself in the most desirable position to execute growth in your business.
Many consider invoice finance to be the key to strengthening working capital in the long term over a straight term loan. Why is this?
One of the biggest benefits with invoice finance compared with a term loan is that there’s a much more direct correlation between the peaks and troughs of cash flow need. Essentially, you can borrow (and pay interest) when you need without being locked into a long-term multi-year repayment plan. It’s a flexible option that lets you access the cash tied up in one of your biggest assets: your invoices. And as your business grows and your invoices increase in value, you don’t need to worry about waiting around for clients to pay these out, so your working capital cycle is stronger.
Additionally, it tends to be easier to be approved if you are working with reliable customers. Lending decisions generally take into account the quality of the customers, so if a small business is working with large, established organisations then this can help get a positive decision towards lending.
What are the crucial bits of information lenders look for when underwriting for finance and how can borrowers put themselves in the best position possible?
If your clients are looking to apply for finance, then getting them organised with the right documents and financials available is the best way to start. When processing applications for SME business loans, we look at six months of the applying company’s business bank account statements, along with their latest filed statutory financial accounts. If the latest filed accounts are more than fifteen months old then we’ll also require management accounts to cover the period from the date of the filed accounts to as recent as possible.
We use the information from these accounts to determine the profitability, liquidity, and solvency position of the company. They also help us calculate affordability for the amount requested, so it’s vital to see as much recent information as possible.
How quickly and effectively are cases currently being underwritten at MarketFinance and in the market more widely?
We’ve focused on reducing as much friction and data re-entry as possible. At MarketFinance we passionately believe that making accurate, fast and clear decisions is super important for small businesses. More often than not, the cash flow needs are urgent due to some unforeseen circumstances in the cash flow plan of a business. Generally, at the moment we’re making decisions and funding within 24 hours, which is the result of a lot of hard work behind the scenes. When needed, we’ve funded on the same day, and sometimes we’ve even reduced this to funding within hours of an application being submitted.
With interest rates being scrutinised in the media, what do you see happening to rates in the next two years?
Obviously we can’t predict exactly what will happen but it’s clear that interest rates will increase soon, and will probably keep increasing. This will have a few effects on small businesses as the costs of goods and materials will go up, and already struggling supply chains may continue to be disrupted as shipping and storage prices increase.
However, a hike in interest rates can also give companies a chance to take a look at what they need to do in house to streamline or improve their operations. They can analyse their own performance and come up with long-term solutions that can stand up to a higher interest economy. We’ve had low rates for a long time now, but businesses have thrived in many scenarios before. The bubble was bound to end at some point.
As for us, because we’re based on a marketplace model, we don’t fund customers off rates set by the Bank of England. That means we can do more to protect our customers from inflationary pressures. Historically we’ve used that advantage to keep our own rates fair and support the businesses we’re here to help.
Is the MTD (Making Tax Digital) delay a setback for financial lenders or is this warmly welcomed?
I don’t see this as a setback for financial lenders. MTD is all about reducing friction in the tax returns process for businesses, which is a great thing. While this does mean an initial administrative change to many businesses, it will provide a much more efficient process to complete tax returns for the future. As we’ve seen in many countries across Europe, this is also typically a step towards reporting and collecting tax in a much nearer real time environment, rather than waiting for the end of a predetermined period. As such, over time, it should help businesses be more up to speed on their tax obligations and the impact on their cash flow.
Does MarketFinance have any new products or software that they think will help clients?
Yes. We keep up constant conversations with our customers and have identified a number of additional solutions that will help different types of businesses manage their working capital. What’s clear to us is that many, many different types of business need working capital solutions, and there’s no one-size-fits-all. We’re developing and launching a range of solutions that provide unsecured short-term lending at the point of need. These will include, for example, at the point of purchase (in a similar way to buy now, pay later concepts in the consumer world); and at the point of a transaction (e.g. when raising an invoice or a purchase order within a business’s finance system).
Our objective with these solutions is to continue to drive towards our vision of frictionless credit for small businesses, making it as easy as possible to obtain finance as close to the point of need as possible. As we’re all aware, business owners are typically short of two things – time and cash. Our goal is to continue to provide products that address both these issues, allowing them to focus their efforts on building great teams plus developing and selling great products.
We hope this has outlined to you the benefits and possibilities when it comes to getting funding for your business. At Nordens, we work with many financial lenders and through our Corporate Finance division we help strategise and compute the best funding packages for your needs and goals. If this interests you, then please get in touch with clientsuccess@nordens.co.uk or alternatively call our office at 02085300720 and we’ll talk you through your options.
