Tech series: How accountants can help SMEs get the funding they need

Dominic Buch, co-founder and managing partner of Caple, tells Accountancy Age why funding for SMEs is so important – and how his company is helping to fill that gap.

Can you tell us a bit about Caple?

We are an alternative credit specialist that helps SMEs and owner-managed businesses to access unsecured lending of between £500,000 and £5m.

My business partner and I founded the company in 2015 and we have offices in London and Amsterdam.

We have a strategic agreement with BNP Paribas Asset Management. The loans we facilitate are part of BNP Paribas Asset Management’s SME Alternative Financing direct lending platform.

BNP Paribas Asset Management also own a minority stake in Caple and sit on our board.

The aim of Caple is to fill the funding gap for larger, more sophisticated SMEs and owner-managed businesses.

Why has it been difficult for these larger, more sophisticated SMEs to get the funding they need?

There is a lot of commentary that SMEs aren’t getting any funding, and the banks are doing nothing. But the reality is more nuanced than that.

Certain parts of the market are functioning well.  Smaller businesses are able to access both bank funding and finance from new entrants such as peer-to-peer platforms. Larger businesses, or those with a tangible asset base, are well served by the banks and dedicated debt funds.

The real problem is for the slightly larger, more sophisticated SMEs and owner-managed businesses, without assets to use as security.

While banks can fund an amount that reflects the tangible assets in a business, they can’t help if a business has no further assets.

Prevented from additional secured funding, until now business owners have had to consider giving up equity to raise funds or agree to personal guarantees.

We call this the “equity dilemma” and too many SME owners face it.  They must consider the difficult choice of scaling back their growth, diluting their ownership or agreeing to personal guarantees.

In an asset-light, service-based economy such as the UK, this is significant barrier to growth.    

Why is filling this lending gap so important?

These slightly larger SMEs are the key to productivity growth in the UK. Productivity gains are most easily obtained by helping growing SMEs become larger businesses. But these are the exact businesses that are underserved in terms of their ability to access finance.

What is different about Caple?

We know that growing SMEs need unsecured credit of between £500,000 and £5m.  This amount is usually too big for peer-to-peer platforms but too small for banks and debt funds.

We are the first in the UK to offer long-term unsecured lending between £500,00 and £5m based on the future cash flows of the SME.  We do not require collateral or personal guarantees as security.

What’s more, we can work with the SME’s bank or asset-based lender and support with complementary funding.

Proving the appetite among UK SMEs for unsecured loans alongside bank lending to fund growth, we have recently completed two eight-year, fully unsecured loans for two UK SMEs in a week. We supported Grayson Thermal Systems (Grayson), a leading supplier to the automotive market, with a £2m loan.  We have also completed a £3m deal with Spinnaker International Ltd (Spinnaker), a world-leading manufacturer of cash protection boxes and asset tracking technology.  Given the benefits of this blended financing approach, we anticipate doing a lot more.

What role do accountants play?

Accountants and business advisors play a vital role for their slightly larger SME clients.

Often these SMEs need a more sophisticated financing solution. That means that the best funding solution may consist of a range of providers.

In order to build that blended financing structure, however, SMEs need advice. That’s why accountants are so important. Accountants and business advisors help their SME clients to understand the funding options available and secure the best blend of finance.

Accountants and business advisors are an integral part of how we support SMEs to access unsecured lending.  We originate loans through our local partner network of accountancy and advisory firms.

In addition to this advice and origination, accountants also help SMEs to develop the business plans and financial forecasts that make the case for funding.

How does Caple work?

Our loans are only available with the involvement of one of our network of accountants or corporate finance advisors. They are best-placed to not only find the demand, but also to build the business plans and financial forecasts that we need to make a decision.

The first step is for our partner firms to use our proprietary platform to test whether their client is eligible to receive a loan.

By providing a few key pieces of information, such profitability and business size, they can see immediately whether their client is suited to the funding available. By putting this at the beginning of our process, we have removed much of the uncertainty that SMEs and their advisors face when trying to secure finance. A quick ‘no’ is a very valuable thing in a market where there are a lot of lenders.

The second step involves developing a detailed funding proposal – essentially a business plan. It’s a 20- to 30-page document, and we need three-year, detailed, quarterly financial forecasts. Typically, the accountant or adviser will bill their client for the work involved in developing these materials.

Our credit teams then assess the application and, if successful, work with BNP Paribas Asset Management to provide the funding.

It’s important to note that we do not charge any arrangement fees. On our side of the table, there are no costs to the SME other than the repayment of the debt and the interest.

We have no financial relationship with the accountant or business advisor. This means the advisor remains completely independent throughout the process and continues to give the best advice to their client.

For accountants and corporate finance advisors, there’s an opportunity to broaden the breadth of the value-added services they offer and grow additional revenue streams.

Are accountants the best people to inform their clients how to get credit?

Accountants are well placed to help their SME clients access credit. Accountants are the SME’s most trusted adviser. They understand the business, its finances and its management team.

While there is now more work and investment required from accountants to understand the more complex funding landscape, there is undoubtedly more value in their advice.

Is the role of the accountant changing, because of technology, to become more of an advisory role?

Technology is changing the role of the accountant, particularly on the bookkeeping side of the profession. While this has put pressure on margins, it has also incentivised accountancy firms to build their advisory offering.  

What is the best way for accountants to stay informed?

There is no silver bullet in terms of helping accountants build their understanding. But engaging and working with lenders in a collaborative way is a good start.  Understanding not just who’s out there, but what the lending requirements are, requires constructive conversations. One of the advantages of Caple is that we are transparent and have a very clear set of eligibility criteria. What’s more, our door is always open and we’ll always pick up the phone and help.