Despite the increase in the UK’s growth projection, Angus Dent suggests that the lack of an increase in productivity outlook means that SMEs will need to be bolder in their business projects, and seek out alternative finance to help their businesses grow. Read more here.
Tag: business
Brexit: Keep Calm and Carry On
The longer Brexit, and the impending doom it will apparently drag in its wake dominates the headlines, the more I find myself wondering: is it really relevant? There’s a tendency among the press – on every part of the political spectrum – to blame Brexit for just about everything. Taking a glance at the papers this week, you would be forgiven for believing Brexit is all that anyone cared about, and is the only significant factor at play in the whole of the UK and Europe. Increasingly, however, I think Brexit is just a political sideshow to the less headline-worthy forces that are driving fundamental, irrefutable change.
Take car manufacturing, currently a great success story for the UK. For a start, thanks must be given to Ratan Tata and an Indian appetite for risk, which is pretty far removed from anything Brexit or even EU related. But aside from this, the wind of change is certainly blowing through this industry. BMW, JLR and Tesla are all focusing their efforts ever more on electric cars, while Toyota, who has never built an all-electric car, is now heading for hydrogen. This is not a Brexit-inspired change. It was in 1925 that the founder of Toyota dreamed of freeing Japan from its dependence on imported oil by using hydroelectric power, decades before the European Union even came into being. It is perhaps more to do with a dwindling supply of hydro-carbons and a wish not to joke ourselves that we press ahead with this new technology, which will bring profound and lasting change the car manufacturing industry, and little more than coincidence that it is happening just as the UK drifts away from its neighbours on the continent.
Another story that has cropped up recently is Lloyd’s of London’s decision to establish their European base in Brussels. Surely motivated by Brexit, I hear you say! The press certainly thinks so, but in light of another, less prominent article about Lloyd’s, I would disagree. Here, they acknowledge that dramatic change, a euphemism for drastic improvements in productivity, is needed if they are to remain competitive. Likely this will involve a wholesale adoption of new technology. Meanwhile, Lloyds recognise that to underwrite large risks, and there are many large risks in Europe, you need to be able to meet and deal face to face, and to look the other party squarely in the eye. Again, it appears, Brexit is coincidental and is not driving change.
It’s safe to say, we will not be seeing an end to Brexit related news anytime soon. While it is easy to get swept up in the drama of the divorce, it is now down to the politicians and the civil servants to get it done. For us laymen, it’s a compelling sideshow. If we are to keep our chins up and our powder dry during this uncertain time, we would do well to remember that Brexit is not the only force at play. It’s just one more opportunity in a world of change, so let’s keep calm and carry on.
Telegraph Hub: How P2P is Bridging the Business-Loan Gap
ArchOver has teamed up with The Telegraph to produce a series of articles to help educate investors on the UK Peer-to-Peer Lending sector. In a brave new economic and financial world, understanding different ways of managing your money is key to success. P2P Lending can help both individuals and businesses navigate a post-Brexit world, with the reassurance that it is a secured and effective method of protecting and growing your money.
As interest rates dive, new ways of raising returns on cash are sparking interest.
With the Bank Rate at a record low of 0.25 per cent and those with cash looking for reasonable returns, the peer-to-peer (P2P) lending sector is receiving a boost.
P2P lending sites offer businesses the chance to borrow money from individuals in order to expand, bypassing difficult-to-obtain high-street bank loans and replacing inflexible and sometimes pernicious invoice discounting facilities.
Some lenders receive returns in excess of 7 per cent on P2P lending sites, but risk losing their cash if the business goes under. This is the issue that Angus Dent, chief executive of P2P platform ArchOver, believes he has addressed with a unique form of security for lenders.
Mr Dent, a chartered accountant and technology business expert, founded ArchOver after realising there was a gap in the market for medium-sized loans for growing businesses.
“If you needed a £50,000 overdraft you could probably get it from your bank and, if you needed more than £3m, you could approach a venture capitalist,” he says. “But there wasn’t any reasonable way you could raise, say, £500,000 or so for your business.
“We also saw there were an awful lot of people who had money on deposit that wasn’t doing very much. ArchOver aims to put those people together in a way that is rewarding for everyone. The name refers to our platform, which arches over from the people with cash to those who want to borrow.”
Loans made through the ArchOver platform are “secured and insured”, which Mr Dent says provides “unparalleled investor protection”. The security policy involves insuring each borrower’s accounts receivables – the money owed by their customers for goods and services that have already been delivered – against the loan.
The main reason why company borrowers don’t repay loans is because their customers don’t pay them. Credit insurance successfully mitigates this risk. Given that most of the borrowers take credit insurance from Coface – an A- credit-rated supplier with a very good record of meeting claims, which represents a significant safeguard for lenders.
Different types of lending provide different types of security, and different types of security offer different levels of liquidity. By securing loans on Accounts Receivable he believes the security is relatively easy to value and liquidate, meaning that the likelihood of getting your money back in the event of a disaster is high. This compares well with property, which is often held up to provide great security, but which is difficult to value and often illiquid. That said, lending should only form part of a diversified portfolio of investments. “We believe people are grown-ups and should do their homework on their investments,” he adds.
The minimum that an ArchOver user can lend to any one borrower is £1,000, an amount that he believes means people will carry out the correct amount of research. “Most people will take an investment of £1,000 seriously,” he says, suggesting ArchOver is suitable for those with a portfolio of different investments, including those people who are managing their retirement income. “Our oldest lender is 89,” he confides.
Lenders are encouraged to find out more about the company that they will be lending to, including the reason for borrowing the cash.
Some of the businesses that have borrowed from ArchOver have included timber frame restoration specialist TRC, healthcare service provider Spirit Healthcare and accountancy business Spain Brothers. In each case, the company found ArchOver offered a better service, a combination of lower price, much lighter touch processing and no personal guarantees than they could get from a bank or invoice discounter.
So far ArchOver has facilitated £22m of loans with no defaults or losses, and Mr Dent believes the uncertainties created by the Brexit vote could further increase demand for the product. “While some businesses will decide not to expand, others will need to find growth finance and, with interest rates at 0.25 per cent, there is more demand than ever from those with cash who are looking for new ways to make their money work for them.”
Time to Break the Invoice Financing Habit
Many SMEs automatically cover the gap between production and payment by using invoice financiers (IFs), which claim to advance between 80% and 100% of the value of each invoice raised, but on average advance only about 63%. This has been fuelled by the reluctance of the traditional banks to lend to SMEs, but virtually all businesses would be better off using one of the other forms of finance available.
IFs usually require personal guarantees and involve huge amounts of internal administration and complicated fee structures, plus the amount of available finance is unpredictable. When business is strong, a company will have lots of money sitting in its current accounts and when business is slow, and the company really needs it, the finance is not there.
Established businesses with strong order books are better off opting for reasonably priced fixed term loans, which are easier to obtain than many believe.
For example, ArchOver offers a fixed term loan for up to two years, which can be rolled over for a further period if desired. This means the business always knows how much is in the bank and the same finance is available in slow times as in good.
These are secured against the insured long-term value of the debtor book and, as long as the value of accounts receivable stays above a certain level, the finance will remain the same. The loans are remarkably straightforward to arrange and no personal guarantees are required.
It is often said that IFs are good for start-up companies with no trading history or stable debtor book, and the amount of finance available grows as the company grows. Nonsense, these enterprises really need equity finance as growth in start-ups is never in a straight line and the problems of good and bad periods are even greater.
It is essential to look beyond IFs in all situations
To learn more about how ArchOver can help with your business needs, contact a member of the team today at 0203 021 8100.