Alternative funding solution to Brexit finance problems for small businesses

Small businesses may be feeling the uncertainty of Brexit but financiers are focussed on the sector to survive and grow following any exit from the EU

Brexit uncertainty is creating divisions of opinions in the small business market as much as in any other sector of the population. But at root there is a consensus that while the situation is far from ideal and clarity is needed, small businesses are essential to the growth of the UK economy.

Alternative financers are not holding back in the focus on small businesses. SME finance provider Capify just announced that it has secured a £75 million credit facility from Goldman Sachs Private Capital. The company says the funding will support its future growth plans and provide working capital to thousands of British SMEs over the coming years.

And Nucleus Commercial Finance (NCF), UK provider of alternative finance to businesses revealed that it lent ove£1 billion to SMEs last year.

NCF provided £282m to businesses – an increase in lending of 80% since the start of 2016. Growth for the company has come from in large part new products and increased use of technology.

Over the last two years the business has realised significant growth. The launch of new products, adoption of technology and the highly experienced team have all been key growth drivers towards this milestone.

The company recorded its strongest quarter to date in Q4 2018 lending a total of £16.3m across its secured and unsecured loan products – an increase of 73% from the same period in 2017. A portal launched in November 2018, designed specifically for brokers saw over 900 applications for finance in its first two months.

Chirag Shah, chief executive officer at NCF said: “Since 2011 we have worked hard to support UK SMEs, providing the financial products they need, when they need them. I’m very proud to announce that we have reached (and now exceeded) such a fantastic milestone. It is testament to the efforts of the entire team and a real spur for us to continue supporting businesses.”

Shah highlights the hesitancy many small businesses have in seeking alternative funding – clearly a mindset he’d like to see changing.

“This is a transitional time for our business and we’re already looking ahead to lending our next £1 billion with our multi-product offering and investment in tech being central to delivering this,” said Shah, “With half of SMEs not thinking to use external finance to grow their business we have to continue to demonstrate the positive impact additional finance can have on business. We can fund from £5,000 to £50,000,000, and our approach is not to categorise businesses, but instead assess them individually.”

Alternative funding options are indeed required with possible governmental and EU funding options coming under threat with Brexit ahead – and it could be small businesses hit hardest.

Jenny Tooth, chief executive officer of the UK Business Angel Association said the recent vote rejecting the Government’s EU deal proposal said: “There is no greater community affected by yesterday’s vote failure than those that live, work and trade in Britain’s regions. With a hugely significant level of funding being ripped from local government grants and various other EU funding pots, an overwhelming degree of financial and infrastructure related support is required to ensure that our flourishing global cities across the UK, in addition to towns in the Midlands and the North, continue to create an environment for new technology and businesses to grow.”

Mark Brownridge, director general of the EIS Association, which helps SMEs obtain funding to grow also expressed exasperation at the impossible position businesses are in, in terms of planning.

“Uncertainty breeds fear and that’s what we will see more of with the agreement not passing the Commons,” said Brownridge, “How can any business plan with political backdrop we are currently experiencing? It’s madness. We will now almost certainly see a slow-down in the economy that could have been easily avoided.

“If the markets and the economy know what the issues are, they react and solutions are put in place to counter them, but with the current Brexit calamity all bets are off. We are entering uncharted waters and anyone who tells you they know how this will play it is lying.”

Despite these challenges small businesses could be the ones best able, with the right support, to forge a path to profit and growth.

“The hope is that Brexit creates an opportunity for SMEs as they can be nimble and manoeuvre quicker than bigger companies which may give them an advantage. One thing is for sure, we are going to need them more than ever to provide the UK economy with the growth and positive effect that we are likely to miss out on due to the Brexit process,” said Brownridge.

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