Technology has its place – but so do experts

Many small businesses don’t fit most lenders’ criteria. This stops them raising critical finance for growth or dealing with problems.

Many lenders don’t have the expertise or experience financing SMEs – this leads them to make lending decisions based on rigid criteria, causing otherwise good companies to miss out.

A poor debt history, for example, is often used as a reason to reject a loan application. Lenders think that if a business has struggled with debt in the past, it will do so again in the future. We prefer to look at how the business has changed and consider whether it is now in a better position to successfully make use of – and repay – the money.

Likewise, hard-to-value assets or the existence of CCJs are black marks that can cause otherwise good SMEs to get rejected for funding. We always try to value assets, and we’ll place CCJs in context – we’ll look at how and why the CCJ happened – rather than immediately declining a loan.

The failure of some lenders to take these factors into consideration results in many SMEs failing to receive the funding they need to grow or get started.  Maybe one day, there will be an algorithm that can effectively consider this myriad of factors and make good lending decisions, but right now, we don’t see it.

Promised Solutions are Leaving Businesses out in the Cold

Things do change. Some new solutions may eventually improve the lending environment for SMEs. It just seems like they aren’t quite hitting their promised heights just yet.

Online-only bank Starling Bank is one such example. The company operates in the consumer banking sector. In 2019, it went from under £400 million in personal deposits to over £1 billion.

As well as its personal accounts that offer a variety of money management features, the bank has a business option and lends to small businesses via an account overdraft. Starling Bank’s success led it to receive a £100 million grant from the Capability and Innovation Fund in February this year.

Starling said it will use this capital, alongside £94.8 million of its own money, to build a “better bank for the small and medium-sized enterprises that are the lifeblood of the British economy.”

It also claimed it will make over £913 million available for SMEs to borrow by the end of 2023.

However, things haven’t taken off as fast as many expected. Recent data suggested that by December 2019 Starling bank had loaned only £782,000 to small businesses — less that 1% of the total it received.

Despite this slow start, Starling told The Times that it was “confident” it will still hit its long-term commitments. We will wait and see.

P2P lending was hailed as another revolutionary way for SMEs to gain access to financing. By using a model that cuts out banks and directly connects consumers with businesses, P2P platforms promised to be an extra source of funding for businesses and a way for consumers to see a high rate of return on their investments.

However, P2P platforms have faced difficulties. Intertest from consumers wasn’t as high as some anticipated, with individuals perhaps put off by the risks associated with P2P lending. This led some P2P platforms to sell the loans to markets instead to keep up with demand.

The loans began to have a higher default rate than intitially anticipated. As well as deterring investors, it also meant that the platforms were forced to implement stricter lending criteria.

Funding Circle, one of the UKs largest P2P lenders, tightened the criteria it uses when assessing loans earlier this year. This is something that will result in it rejecting more businesses that need loans.

Funding Circle and perhaps in the future Starling Bank can be good options for companies with very strong financials.

However, they still leave plenty of businesses unable to gain funding. Deals that are more complex or have extenuating factors are less likely to get funding. This is where going with a lender that has expertise and provides a personalised experience can help.

Reparo Does Things Differently

In one of our recent blog posts, we looked back at some of the deals we made during 2019. We came up against various issues that could have stopped the businesses from getting funding if we weren’t willing to take a deeper look.

Some of the companies we worked with had CCJs against their name or were struggling with issues from HMRC. Others had atypical assets that were hard to value. One of the deals was difficult simply because of the large number of stakeholders involved.

By taking the time to get to know the companies and their reasons for applying for a loan, we were able to work out deals that saw them receive the money they needed.

The story at this link is a great example of a business that we were able to provide with a loan despite several issues on its application. The applicant was an agricultural services company that came to us as it was having trouble obtaining funding from a traditional lender.

The issues were:

• First, the director wasn’t a UK homeowner. This made it difficult for them to put up an asset as security for the loan.
• Additionally, there was a CCJ on the company record as well as a HMRC Winding Up Petition for an unpaid VAT bill.
• The final problem was that the business needed the money to purchase second-hand equipment, meaning that the asset financing model often used for equipment purchases wasn’t an option.

Despite these issues, we decided to take a deeper look at the business. The team went to visit the entrepreneur in person and spoke to him about why they needed the money. Following a discussion, we were able to work out a deal with the business owner who explained the issues.

The owner was clear about the business model and why he needed the loan, which meant we could see the potential for a successful business. The company’s ten-year history further strengthened the case. Beyond this, the owner clarified that he had already made a payment to clear the debt that had caused the HMRC Winding Up Petition.

Finally, while the business owner couldn’t put up an asset himself, a family member was willing to do so, and the company also registered a debenture. All these factors came together to mean that we were comfortable providing the business owner with a loan, despite the significant adverse events.

Why Reparo is a Perfect Choice for SMEs that are Struggling to Receive Financing

The flexibility of our service makes Reparo a good choice for businesses that are struggling to receive financing. Here is why:

• We take a common sense approach to financing. Instead of being bound by rigid criteria, we take the time to look at the specific circumstances a business faces. These include why the company needs money and, if there are adverse events on the record, why the issues exist, and whether the company has taken steps to move beyond them.
• Of course, this wouldn’t matter if we didn’t have the expertise to make these calls. Each member of our team has over ten-years of commercial experience, putting them in a good position to make these decisions.
• Reparo understands that sometimes businesses need money fast. Because of this, we will work to your schedule. Successful applicants will often go from the application process to having the money in their accounts in just days.
• A successful loan isn’t just about getting access to the money. It only works if the repayment plan suits all those involved. We work with businesses to come up with a repayment schedule that suits all parties.
• Finally, we are happy to lend for a variety of reasons. It could be that you need money to get set up, to overcome short-term issues, or to grow your company. Either way, we always search for a reason to lend.

If these points appeal to you, then get in touch with one of our team to discuss a loan of between £20k and £1 million. Either call us on 0161 451 5710 or email sales@reparofinance.co.uk.