Accounting and Finance

Top Tips: Five Ways for SMEs to Get Access to Cash


Christian Lanng is CEO, Chairman and co-founder of Tradeshift, with the lead responsibility of shaping strategy and vision.

Christian shares his top tips on how to get access to cash as an SME.

Getting cash from banks is a major challenge for SMEs. It’s pretty much the most capital-heavy lending a bank can deliver - and as a result, it’s just about riskiest. A lack of SME funding does not only affect SMEs, it also affects the big businesses they work with and it is in the best interests of any buying organisation to ensure their supply chain has the financial resources needed to succeed.

So where can SMEs turn if they need to fund their growth? We look at five ways for SMEs to get access to cash, and how well they might work for your business…


1.       Funding for Lending Scheme

The Bank of England’s Funding for Lending scheme gives banks access to cheap finance in the hope that they then pass on the lower costs to borrowers, stimulating SMEs into becoming a key part of the economic recovery plan. But they have barely benefited, with gains going instead to mortgage borrowers. The Central Bank has now said it is scrapping the scheme for mortgages to guard against a house price bubble and has "refocused" on business lending. The increase in availability of credit should give a boost to SMEs, but only time will tell how successful the refocused scheme will be.

2.       Enterprise Finance Guarantee

The Enterprise Finance Guarantee initially appeared to offer some hope for cash hungry SMEs. It was reportedthat through this scheme, banks offered loans worth £111m to SMEs in the third quarter of 2013 - the most since 2010. Yet, to be eligible for the funding, the banks that supply it need to see historic accounts or audited accounts. Which if you’re a very young company, you won’t have. And if you need the money fast, it still doesn’t work. The Government needs to do some work to make the scheme flourish.

3.       British Business Bank

To address some of the issues surrounding the schemes above, the government has launched the British Business Bank. It will deploy capital to companies with turnover up to £25m and will work in partnership with other financial institutions to improve access to private capital. It will part-guarantee loans via existing and new banks and alternative providers such as peer-to-peer lenders, and co-fund investment by venture capital and business angel networks. If all goes to plan, it will be fully operational by autumn 2014 and has £1.25bn of core funding from the government on top of £2.9bn of capital from existing state schemes. However, some critics say the amount of money is too little to make a significant difference.

4.       Social Data

Businesses are becoming more social. Almost all of us are connected in our personal lives by social media, and many businesses are starting to understand the power of the network. Just as Facebook makes use of the huge amount of data flowing around its data, there’s a massive potential for lenders (banks and non-banks) to use that data on business networks to make much smarter lending decisions. As they do so, lending issues will reduce as audit information and understanding of creditworthiness are all replaced by proof of past transactions and evidence stored within the network.

5.       Factoring

Unpaid invoices are often a barrier to SME insolvency. One way to circumvent this is through factoring. However, this process can still be restrictive - for many businesses the fees and interest rates mean it is not always a viable option. However, CapitalAid recently launched a £3bn fund that floods the invoicing process with cash. It works like factoring in that it’s based on invoices, but it’s a world away in terms of the speed at which the funds can be accessed and the aggressive pricing that lenders can offer.




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