- 26 Nov
Discussion Points From The Alternative & Receivables Finance Forum SME Insights Panel
Following my previous post about the SME Insights panel at the Alternative & Receivables Finance Forum, I went to what was a well organised event, by BCR Publications, at the De Vere Grand Connaught Rooms, London, last Thursday, I was fortunate to have a great group of panelists, for the discussion which covered SME opinions on business finance, Brexit, Fintech and receivables financing trends.
I thought it might be useful to post up some of discussion points that came out of the panel.
The panel started with a short presentation from Shiona Davies from BVA BDRC, the research agency that operate the SME Monitor. The monitor tracks the opinions of several thousand SMEs each year.
The key findings of the SME Monitor were that 8/10 SMEs are now profitable and 4/10 have grown in the last year.
Whilst there was an increased propensity amongst UK SMEs to anticipate future growth, with 47% now anticipating growth over the next year. There has also been a gradual increase in the number of permanent non-borrowers, up to 49% from 34% back in 2012. 34% are now using external finance, down from 44% in 2012.
Just 4% had applied for finance during the last year, mostly to their main bank (67% of cases), with 85% of applications resulting in a facility. However, only 72% of applications resulted in them getting the facility that they had wanted. The remainder are clearly the target market for alternative finance.
Whilst there was no single issue influencing the demand for external finance, using credit balances, a self reliant attitude and a low awareness of some finance products, were all cited as contributory factors leading to a issue of demand, rather than supply within the alternative finance sector. This echoes our own research where the lack of awareness of receivables finance has been repeatedly highlighted as a key issue that the industry needs to address.
Advantages Of Alternative Finance
The panel went on to discuss some of the advantages of alternative finance, including flexibility, transparency of charges and speed of response. Leveraging technology has clearly been a strategy for the fintechs who can move forward with developments at a far faster pace that many of the banks who are often tied up with legacy systems and red tape. Speed is also an issue in servicing the SME market, who tend to be time poor and need a quick response time to apply for facilities. Despite the steps forward within the fintech sector, there is still scope for even faster turnaround of facility.
Brexit was mentioned as one of the factors driving "uncertainty" in the UK, however the research suggests that it is not the sole cause of uncertainty. Brexit was also suggested as something of an opportunity for the alternative finance sector. In the event of a disorganised exit from the EU, in whatever form that takes, there is the possibility that banks may tighten lending to some sectors. This could leave the alternative finance sector well placed to take advantage.
There is a great Brexit navigation tool on the KPMG website that I came across in the course of my research for the panel: https://home.kpmg.com/uk/en/home/insights/2018/07/interactive-brexit-navigator.html
A study on behalf of KPMG concluded that 34% of SMEs were going to be directly impacted by some aspects of Brexit. However in some cases these impacts could be minimal e.g. affecting stationary purchases, so the direct impacts are perhaps not as far reaching as many might fear. However any impact on the economy will have more far reaching effects.
Single Invoice Finance Versus Revolving Facilities
The appetite for Single Invoice Finance (SIF) versus revolving facilities (that encapsulate the entire turnover of the borrower) was mentioned. The panel were of the mind that they saw a demand for revolving facilities, rather than SIF. However, the place for SIF was acknowledged. Our own experience, at FundInvoice, is that c. 17% of our enquiries relate to selective facilities, with the remaining 83% asking for a revolving line of credit. So there is clearly a demand for both, but a focus on revolving credit lines.
Open Banking, whilst targeted to increase access to alternative finance has apparently not achieved the levels of awareness, nor uptake that had been hoped.
The panel acknowledged that achieving a unique way to identify parties online, with a Digital Identity was important to increasing the level of rapid access to alternative finance.
Late Payment was also raised as an important issue for SMEs, even if it is a minor delay of days or weeks, and the panel acknowledged the important role that receivables financing can play in mitigating the problem.
Overall is was an interesting debate with a lot of useful customer insights and research findings for the alternative finance and receivables financing sectors.