UK businesses face a major funding crisis, ArchOver finds, with 34per cent saying late payment has caused their business to fail
London, UK – 4 March 2019 – British companies are facing a funding crisis because banks are not supporting the future of UK PLC. Businesses desperate for finance to support their growth are only receiving on average 70 per cent of the agreed loan – which means over a third (37 per cent) are unable to launch a new product or service as a result.
Research commissioned by ArchOver, which reviews the funding landscape for UK businesses in the last year, has found that one in five companies are being rejected for a loan by banks, and of those 17 per cent were put off or unable to apply for any further loan, crushing the entrepreneurial spirit of UK SMBs.
The research also identified the catalysts for companies requiring additional financing and what type of loan they secured.
More than two in five (43 per cent) were prompted to seek finance in order to fund digital transformation, whilst 39 per cent needed a loan facility to fund the move to a new premises or purchase new equipment. More worryingly, over a third of businesses required credit to cover short-term cash flow issues – a threat to their ability to function overall.
ArchOver discovered that part of the reason for this is that companies are facing an epidemic of late invoice payments, causing cashflow problems that are compounded by the lack of bank support. Less than one in twenty respondents (under 5 per cent) said their invoices are paid on time all the time. Just under half of them (49 per cent) said they receive fewer than half of their invoices by the due date.
That’s pushing many into the arms of dangerous financing options. Four in five (81 per cent) of businesses have considered using invoice discounting to fix their cashflow problems. But over-promising is built into invoice discounting. The same amount of respondents (80 per cent) said their business is now over-dependent on invoice discounting – like opium, it provides a quick hit, but at the cost of addiction and long-term expense.
Conversely, nearly six in ten (58 per cent) of those who’ve used invoice discounting now believe peer-to-peer (P2P) lending is safer, and 54 per cent believe they can obtain a better rate on their loan with a P2P provider than through a bank.
“The funding system for UK businesses is broken”, commented Angus Dent, CEO. “2018 was a tough year to be an SME to say the least, but companies aren’t bowing down just yet – despite the best efforts of the banks. Our research shows that despite their optimism, high-growth companies are being turned away time and again by big funders who, we’re told, have postponed all decisions on sub-£10m loans until after 29 March. That businesses have to run into the arms of unscrupulous invoice discounters to find cash is an indictment of the finance industry’s treatment of British business.
“Brexit is about to make the funding picture even harder for businesses. But there are options that won’t ignore you or suck you dry. If they want to keep growing in 2019, UK companies need to look for financiers who’ll get to know them deeply and support them through the storm – not just make a quick buck from them.”
To read the full report, please visit ArchOver’s website.
About the research
In Q4 2018, when the Pound hit its lowest rate against the Euro since the 2017 Brexit referendum, ArchOver commissioned research to understand how UK businesses are affected by unfulfilled promises and misleading terms and conditions in their funding arrangements. It aimed to get a clear picture of SMEs’ experience when seeking funding, the major obstacles they face and the impact they have.
We interviewed 255 respondents, working in businesses with 50 or more employees who have sought finance in the last five years or are currently seeking finance.
All respondents were management-level and above, and were spread across the IT, financial services, manufacturing, professional services, construction and pharmaceutical industries. Participant companies had revenues ranging from £500,000 to over £100 million.
ArchOver is a peer-to-peer (P2P) business lending platform, connecting businesses requiring finance with investors seeking an alternative asset class for their investment portfolio. ArchOver is approaching £100m of funding to UK businesses, having paid over £5m in interest and delivering lender returns of up to 10% p.a..
“We are helpful, focused and flexible. While technology sits at the core of what we do, we are a people business; we believe in building lasting relationships.”
Lending with ArchOver takes place over its secure online platform. Invest on a loan-by-loan basis in multiples of £1,000, or in increments of £250 via its automated Investment Plan. Loan-by-loan investments earn interest between 6% and 10% p.a., and up to 6.4% via their Investment Plan. Interest is paid monthly in arrears from loan draw down.
Borrowing companies are UK-based and seeking a loan of between £250,000 and £10m. They will have been trading for a minimum of two years, have an established management team and proven business model. Loans are for any business purpose, typically raising working capital, replacing invoice discounting or bank overdrafts. Loans are fixed term, for a fixed amount and at a fixed rate of interest.
ArchOver offers five lending services supporting UK businesses. Each service addresses security in different ways to suit the needs of the Borrowers and the appetite of the Lenders. ArchOver’s flagship ‘Secured & Insured’ (S&I) service allows lenders to invest in loans secured against a company’s Accounts Receivable, where those Accounts Receivable are insured. ‘Secured & Assigned’ (S&A) allows Lenders to invest in loans that are secured against a company’s contracted recurring revenue, with ArchOver taking assignment of the contracts. ‘Secured’ (S) loans are leveraged against either a company’s Accounts Receivable or contracted recurring revenue, with the main difference being that the Accounts Receivable are not insured and the recurring revenue is non-assignable. ‘Bespoke’ (B) loans are made on the same basis as S&I or S&A, with the sole exception being that the all-asset charge initially ranks second and will transition to a first charge during the loan term. ‘Research & Development Advance’ (RDA) is unsecured short-term lending against an identified Research & Development claim payable to a company by HMRC. ArchOver also has an IFISA.
ArchOver is a member of the long-established, privately-owned Hampden group.
ArchOver is authorised and regulated by the Financial Conduct Authority 723755.
Lender capital is at risk and interest payments are not guaranteed if the borrower defaults.
Lending over the ArchOver platform is not covered by the Financial Services Compensation Scheme.