We’re seeing headline challenges of rising input costs, supply chain delays, interest rate increases and staffing constraints. These are resulting in caution and conservatism from both businesses and lenders, especially for consumer-led sectors.
Even so, there are opportunities to raise funding for business. Despite the continued challenges there remains a degree of optimism and desire from businesses to achieve growth in 2023. The good news is that there is substantial bank liquidity in the market to support these plans. So let’s take a dive into alternative finance options.
We expect to see the contribution of alternative finance (AltFin) to meeting the demand for new lending continue to grow. The AltFin marketplace – the catch-all term for funding options other than traditional high street banks – is expanding at pace, with new lenders launching almost every week offering solutions serving every need and providing more options for businesses than ever before. While we are pleased to see high street banks open for business, their appetite remains cautious.
The AltFin funding market presents a great opportunity without disrupting incumbent banking arrangements. It can unlock transactions or finance growth through a less conservative risk appetite or the deployment of niche products and expertise. There is a premium on the price, but alternative funders can make things happen, helping a business survive and thrive through features such as flexible repayment structures, longer terms and higher loan-to-value ratios. Specific purpose offerings include revenue-based lending, funding single debtor invoices, funding advances on approved R&D claims and spreading the cost of tax bills.
AltFin can give business owners and founders more flexibility and variety for choosing funding solutions. It’s popular with owners who can’t access the options offered by major lenders, for example because they’ve been refused a loan. Others explore alternative finance as an alternative to private equity, so it has many applications across the SME marketplace.
Government support schemes (Coronavirus Business Interruption Loans and Bounce Back Loans) continued to feature heavily in the dialogue throughout 2022, be that the coming to an end of initial interest-only periods and extensions being sought or loans being repaid as company outlooks improve from the lockdown period.
Government support continues through the Recovery Loan Scheme. However, a maximum loan available to a single business of £2 million (compared to £10 million under CBILS) makes them less of an option for larger businesses and the government guarantee dropping to 70% is less attractive to funders. We expect the RLS to remain a talking point albeit for different reasons – for those businesses looking to raise new borrowing with an existing CBILS loan in place, the security waterfall arrangements are not straightforward and may impact what new lending is available. But there are ways to work around this if you seek the right advice.
The key message to reiterate about raising funding for business is that there is a lot of liquidity, so speak with your advisers to explore the options available. To continue to manage the headwinds it is crucial businesses have access to funders with flexibility and creativity. With unrivalled expertise and experience of whole-of-market funding options, we are well positioned to help businesses understand what funding options are available to them, saving management the time and effort of trying to navigate what is now a substantial marketplace.