The Importance of the Right Funding

Evette Orams talks about the importance of the right funding for business growthWith business performance improving and the economy showing signs of a stable recovery, business confidence is on the up. Evette Orams, Managing Director of invoice finance broker Hilton-Baird Financial Solutions, uses the results from the latest SME Trends Index to explore the importance of businesses securing the right type of funding.

The economy has been steadily fighting its way back to recovery. It has been a clear theme for a few months now that the recovery is continuing to pick up across Britain and, underlining this, recent figures from the Office for National Statistics have revealed that the UK recorded its third successive quarter of growth in Q3 2013. This comes as no surprise, with Hilton-Baird’s SME Trends Index showing that there is much to be positive about as we head into 2014.

In December George Osborne presented his Autumn Statement, assuring us that a ‘responsible recovery’ is now on the agenda for Britain and that small and medium sized enterprises are at the heart of it. They have been highlighted as one of the main contributors of the growing economy, with Osborne stating:

“Businesses have already created three jobs for every one lost in the public sector.”

With the UK at the top of the recovery league table, and the potential good news of lower rates for small businesses and start-ups being announced, now may be the time to seek expansion.

Our SME Trends Index questioned business owners and finance directors on a range of subjects in September and found that the financial health of UK businesses increased for the second successive year to its highest level since the survey began three years ago. It showed respondents in a confident mood, with 51% expecting their business to expand in the next six months. Yet it seems apparent that there are a number of challenges facing many businesses that are holding them back from reaching their full potential, and one of these is the ability to access the right sort of funding.

While the proportion reporting they were most concerned about generating new business, the rising cost of fuel and raw materials and general cash flow management all fell, there was a 4% rise in the number most worried about access to finance.

Given the evolving commercial finance landscape it is encouraging to note that 63% of the business owners and finance directors questioned in the survey had reviewed their existing finance arrangements within the past six months. What remains concerning is that almost one in five admitted to not reviewing them inside the past year (19%).

It is vitally important that businesses are always monitoring the changing lending landscape and it is a good sign that many seem to be doing this. However, the survey shows that the perceived high cost of finance is driving many British SMEs to seek out cheaper facilities when they come to review their existing funding arrangements.

When doing so, 45% of businesses said that securing lower costs is the primary objective, which makes up almost half of the respondents. Fewer than one in ten are on the hunt for something more suitable, with only 16% looking for better service levels from their funding provider.

This is of particular concern due to the fact that the commercial finance industry never stands still and, particularly when combined with the improving economic picture, what might have been right for a business six months ago might no longer be the best solution. It is important that businesses consider the overall value of any facility rather than simply focusing on cost. Accessing the right sort of funding for your business is vital for it to achieve results and reach its potential growth.

The survey found that business credit cards (used by 45%), bank overdrafts (42%) and bank loans (23%) are all widely relied upon, as are loans from family and friends, use of which increased by 8% year on year to 19%. Encouragingly however, the use of asset finance (28%) and invoice finance (22%) both increased as well.

What particularly stood out from the survey was the fact that businesses currently benefiting from asset finance and/or invoice finance facilities are significantly more optimistic than those using any other forms of business finance at present – with 68% expecting to expand in the next six months.

It is obvious that these solutions instil the confidence required for businesses, and the economy as a result, to keep growing. Now is surely the time for the rest to sit up and take notice too.


Evette Orams is the Managing Director of Hilton-Baird Financial Solutions, an independent invoice finance broker with expertise across the wider commercial finance market. For more information on how invoice finance could help your business, visit www.hiltonbaird.co.uk/FS.

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