Why accountants are the trusted advisor for funding

Why accountants are the trusted advisor for funding

Dominic Buch, co-founder and managing partner, Caple, explains how accountants can help small businesses get the unsecured finance they need for growth

Why accountants are the trusted advisor for funding

Some 10 years after the financial crash, SME funding remains one of the most persistent problems impacting the UK economy.

The latest Bank of England data reveals the scale of the continuing problem.  The figures show that there is around £10bn in unmet lending to small and medium sized businesses across the UK.

Yet if SMEs are to reach their full potential, they need access to capital.

Alternative financiers are stepping in to help fill the gap.  Many offer new ways to help SMEs gain the funds they need to grow.

Accountants now play a vital role, providing advice and expertise to support their SME clients in securing the right finance.

Accessing capital

Many SMEs struggle to access capital.  Yet many are not aware of how alternative finance could help them grow, according to research from the Federation of Small Businesses.

But there is more to it than simply a lack of awareness.

Too often the lack of assets to use as security prevents SMEs from raising finance to develop their business.  As a result, business owners must consider giving up equity to raise finance.

But our survey of 300 SME business owners shows they do not want to issue equity in their business to fund growth.  Indeed, more than half (53 percent) would be unlikely to issue equity to fund growth.

Instead, more than three quarters (76 percent) of respondents would prefer to raise money through long-term debt rather than give away equity.

Facing an equity dilemma

SME owners often face an equity dilemma.  They must consider the difficult choice of scaling back their growth or succession plans or diluting their ownership to fund them.

In an asset-light, service-based, economy such as the UK the lack of access to unsecured lending is a critical barrier to growth.

Our research of SME business owners reflects our conversations with accountants.  They tell us that there is a significant funding gap for unsecured credit of between £500,000 and £5m.  Too big for peer-to-peer platforms but too small for banks and debt funds.

So how can accountants help?

Accountants are the SME business owner’s most trusted advisors.  They turn to their accountant for help more than they do any other advisor.

Our research shows that nearly two thirds (61 percent) of small business owners would expect their accountant to have a good understanding of all the finance options available.

An integral part of the process

At Caple, accountants and business advisors are an integral part of how we support SMEs to access unsecured finance.

Accountants assess the eligibility of their clients for funding, supported by our technology platform.  And they prepare business plans and financial forecasts that make the case for funding.

Caple originates loans through local partner networks of accountants and business advisory firms.  This is combined with an initial credit assessment by our credit analysis teams, creating a seamless, end-to-end credit process.

But to accommodate the value-added work provided by an accountant, we must change existing lending models.  As we do at Caple, greater certainty of outcome must be provided at the beginning of a process, and no arrangement or any other fees should be levied by the lender.

In this way, accountants can play a central role in the process and be remunerated by the client without the client experiencing any increases in the cost of funding.

What’s more, accountants are well-positioned to advise on the suitability of the proposed lender.

In a world where all credit was provided by high street banks, this was unnecessary. However, with a larger number of non-bank entities now in the market, understanding the quality and reputation of a creditor has never been more important.

Where does the money come from?

As banks retreat from this market, alternative financiers are filling the gap.

For instance, Caple’s strategic alliance with BNP Paribas Asset Management enables SMEs to access funding from institutional investors.

What’s more, BNP Paribas Asset Management has the ambition to provide €1 billion in funding across Europe and €400 million in the UK per year through its SME Alternative Financing platform.

Now, through new businesses like Caple, SMEs are able to access long term flexible and unsecured debt finance of between £500,000 and £5 million.

So far, we have completed four deals and, given the benefits of unsecured debt finance among SMEs, we anticipate doing a lot more.

Just this month, we have facilitated a £700,000 unsecured loan for Intastop, a manufacturing business.  In November we completed a £3.5m unsecured loan with Smarts Plumbing Specialists.

In all our deals, accountants and business advisors were critical to their success.  Through their expertise and knowledge of their clients they were able to originate loans and build detailed funding proposals.  Ultimately, this meant they helped their clients secure finance.

With new lending models that make the best use of accountants, institutional investors and technology, SMEs can access the capital they need for both growth and management succession.

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