WEEKLY COMMENT 17-04-2014
By Barry Edwards
New Sources of Finance for SME’s
Over the last six months there have been several new SME lenders that have been set up to offer business loans that have attracted funding in the USA. They are all purely Internet based and promise to provide the funds if you are approved within a few days and some will credit your bank account instantly. They are mostly interested in working capital finance although some will look at longer term loans up to five years.
The reasons for this proliferation of new lenders to smaller businesses are the new capital requirements for banks has reduced their commitment to this sector and the availability of information about these companies is much more readily accessible over the Internet. New regulations have opened up the restricted financial information data bases, previously only available to banks, to all approved lenders which means these new entrants can access much more information about the credit history and payment details of SME’s.
In addition to this vital information being made accessible, the accounting information of companies is increasingly being stored on cloud based systems allowing accurate up to date reporting of accounts with the permission of the borrower. In effect, lenders can see how any company is performing on 24/7 basis and add their own evaluation models to that to make instant assessments of credit worthiness. This can produce a lending figure that each company would have available if they needed extra funds on a rolling basis.
It is easy to see the attraction of this facility to SME’s when traditional lenders can take months to make up their minds whether to lend to you or not. These new lending organisations are growing rapidly and having a big impact on the provision of finance for this cash starved sector of the market. It will not be long before the banks realise their hold over this lending is being taken away from them and begin to change their methods, although some have made it clear they are concentrating on the financially sound and established companies in the SME market only.
These new lenders are in addition to the peer-to-peer funding enterprises where private individuals lend tiny amounts each to a particular company to increase the yield on their savings. The USA has been the leader in both of these methods of providing funding, the peer-to-peer lending has been copied in the UK by several new companies but the on-line working capital finance has yet to arrive here. The British government is planning to open up the financial information sources to approved lenders in the near future and is actively encouraging credit checking businesses to establish a rating system for SME’s.
The business lending market is going through an evolutionary phase and governments all around the world are encouraging new ways to get the funding out to businesses that cannot grow without it. It has been recognised for some time in the developing countries that banks have held back the growth of small and medium sized businesses while they concentrate their lending on the very large companies that export worldwide. Central banks everywhere are trying to influence more funding for businesses by stating their commitment to purchase bonds of securitised business loans although there are precious few around made up of SME loans.
The next few years will see a revolution in methods of financing companies, especially SME’s which will stimulate many businesses to invest and grow transforming the lacklustre economies of Europe. Unfortunately, the funding is needed right now so competition for funding is very intense at the moment but as the economy grows this should get more available while the new techniques can get properly established.
Txtreme is planning to support smaller companies, as I mentioned last week, by providing access to professional advice in conjunction with technical back up and helping to arrange finance. We believe that although many companies need more finance to grow they also require the right professional support at a cost that is affordable and payable in small amounts monthly. The Txtreme website will have a new section explaining these services which will be available during the month of May.
The main approach Txtreme is taking is that just about every business needs to use technology in one form or another and to make that work effectively for the company, you must decide the strategy and how it will be implemented. Txtreme believes that many of these businesses need help to decide the strategy and require proper support to manage the technology investment they make. The Txtreme team and their network of associates have many years of experience in a wide range of business activities and have the Internet presence to provide those skills to all who want assistance.
Txtreme is evolving itself and intends to link up with some of these new funding enterprises to make a real difference to the expansion of the lending market for SME’s. The interest we have received so far is very encouraging and those business colleagues we have spoken to have expressed interest in taking up the new service. More news on how this progresses in future weekly comments.
That’s all for this week, more observations next week.