At Partnership Invoice Finance, we are proud to say that we have continued to offer invoice finance and support to existing and new clients throughout the pandemic. We remain committed to helping to sustain the cash flow of SMEs and our economy as businesses start to return or ramp up their trade as lockdown levels reduce.
We have all been affected by this virus that has ravaged the world, resulting in social distancing, trade restriction measures and closures that have had a huge impact on the economy. The job market is naturally struggling, with universal credit applications increasing as much as 10-fold during some weeks following lockdown. The government’s furlough scheme may be draining the government coffers but it has provided vital support early on.
Triumph in the face of adversity
What has been a glorious triumph of entrepreneurship and resilience though, has been the ability of the business community to perform spectacular pivots as trading restrictions left them unable to bring their original offerings to market.
Rather than accept being suddenly a square peg in an albeit temporary, but distinctly round hole and waiting it out, many businesses asked the question “What does the world need that I can sell and how can I find a way to fulfill that demand?”
From milliners using their sewing machines to produce face masks, market traders and pubs turning to e-commerce and creating delivery networks overnight, drive-thru garden centres, gyms and personal trainers switching to training clients over Zoom, to manufacturers transforming production lines to produce hand sanitiser, surgical gowns or ventilators. The power of knowing when to, how to and having the agility to pivot and take action has never been more obvious.
What is also obvious is that now, more than ever, access to working capital is crucial for SMEs. The banks’ overall reluctance to provide this lifeline to SMEs shows that alternative finance and private investment is what will be driving our private sector to achieve growth despite adversity over the coming years.
The media’s attention (when it stops trying to point score) generally focuses on the struggles of big businesses, with the potential for giants of the retail, leisure and hospitality industries to go under. For these circumstances the government has looked to provide additional support through the Bank of England via the COVID Corporate Financing Facility.
Eligibility for accessing the scheme rests on a company’s status as being considered to make a material contribution to the UK economy, combined with an investment-grade rating, or at least a sound long-term rating from a reputable credit rating agency.
One step down from that, servicing more of the ‘M’ in SME, we have the often-criticised CBIL offering. This floundered early on due to the banks’ inability/unwillingness to help it reach its true potential, but was quickly bolstered by the arguably more successful Bounce Back Loan Scheme. This is designed to help smaller businesses borrow between £2,000 and £50,000, up to a maximum of 25% of their turnover.
Alongside traditional banking facilities it would seem there has never been more support for businesses who wish to, or need to, take on debt.
But for SMEs is a fixed loan the best way forward?
SMEs make up 99.9% of the private sector and by their very nature need to be fast moving and flexible. So is borrowing a fixed sum of money the right way to finance this?
It depends largely on the purpose of the funds. A loan may initially appear to be a panacea, but as business returns to normal and sales increase there may be a requirement for further monies to finance a working capital need, which by its very nature varies based on sales made.
A business that has not traded for a while, or has managed to do so at much reduced levels, needs less cash. In many cases all that’s needed is just enough to cover the fixed overheads, but as sales increase once again, so do the variable costs.
How can the exciting prospect of increasing business be financed when it’s so hard to predict what is going to come next? Will the banks really agree to lend more money and should you take on more fixed term debt?
To us, it makes sense that supporting entrepreneurs to keep starting businesses as well as providing vital growth finance is paramount to the UK’s economic recovery.
Before COVID-19, SMEs were experiencing growth at a faster rate than the overall job market. The survival of the small business community is as, if not more, important to the success of the UK economy than that of the corporate giants. In fact, with a contribution to the economy totaling more than £2trillion, we would go as far as saying our economic future hinges on the success of SMEs. That’s why we believe so strongly in providing adequate support for them to not only survive, but thrive.
One way SMEs can thrive is by matching their businesses funding to sales levels. Through invoice finance you have a facility that is not predicated on the last three years accounts or difficult-to-make projections, but rather a facility directly tied to the sales made now. Invoice finance is a facility that grows as the business does, providing the confidence to know that there will be the cash available to fund growth without having to keep trying to renegotiate limits, seek new borrowing or worrying how to fund that new opportunity.
Access to SME finance is crucial
We are continuing to finance and support SMEs through this crisis and will continue to do our small part to ensure our economy is safeguarded. Liquidity and agility are vital when it comes to getting through tough times and perhaps even more so when coming out the other side. Our ability to turn those sales made on credit terms into immediately available cash is an example of real-time finance that is responsive to the funding needs of a business.
So many sectors have been hit hard but, when they are able to return, we have every confidence that businesses will bounce back as the UK returns to work with entrepreneurs leading the charge to grow the economy once more.
The importance of small businesses having access to finance has never been more evident, and we are determined to keep increasing access wherever possible and practicable. Contact us to talk about your business, how you are faring during these unprecedented circumstances and find out how we might be able to help you do what needs to be done to prosper despite (or even thrive because) of them.