Handing over money to UK SMEs is not where a bank’s role should end, a specialist bank has reported.
According to research commissioned by Saxo Payments Banking Circle, the backbone of the UK’s economy is facing potentially fatal challenges in accessing finance to support business growth.
The data found that 58% of SME respondents would consider finance from a non-bank if it offered lower interest rates, while 44% would do so for lower arrangement fees.
Some 25% would be attracted to a non-bank by simple online account management.
Anders la Cour, co-founder and CEO at Saxo Payments Banking Circle, said: “Our research found that lack of access to additional finance would force 25% of SMEs to let employees go.
“Nearly a third (30%) would have to reduce prices to encourage sales and increase cash flow, and 39% would be unable to buy the equipment the business needs.”
Specialist Banking recently attended a roundtable event held by the New Statesman, in association with Aldermore, which discussed how to support Britain’s small business community.
While access to finance was a key topic, mentoring and business advice also seemed to be high up on the wish list for businesses.
Following the event, Specialist Banking asked industry experts what specialist banks could do to further assist SMEs and, as part of this, whether they should be offering mentoring services alongside their lending products.
Carl D’Ammassa, group managing director of business finance at Aldermore, said that while mentoring would assist with day-to-day troubleshooting, access to funding would still be SMEs’ main priority.
Aldermore’s recent Future Attitudes research revealed that 23% of SMEs missed at least one new business opportunity in the past 12 months due to a lack of available funding.
“Those impacted are losing out on income worth an average of £78,942 a year,” explained Carl.
Is SME mentoring as vital as finance?
A survey by Accenture of 1,000 SMEs across the UK found that over 60% were interested in using their bank for additional, non-financial, value-add services, with many willing to pay a fee for it.
“We calculated that this could be worth up to £8.5bn in new revenue for banks, meaning it’s not just something of huge value for SMEs that need more support to better run and manage their business, but it is of real tangible value for banks too,” said Stuart Chalmers, head of UK commercial banking at Accenture.
“…As banks look to develop their own marketplace or ecosystem of partners and services, a proposition that includes advisory services can only be of benefit.”
Hampshire Trust Bank recently developed a business toolbox on its website which provides free advice to businesses, allowing access to information about a range of topics that may at some stage affect them.
“As a specialist bank, we lend expertise as well as money,” said Stuart Hulme, marketing director at Hampshire Trust Bank.
“It’s important to remember that SMEs are not always aware of what is needed to grow, both from a strategic standpoint, but also from a legal and company law perspective.
“Specialist banks, therefore, have a crucial role to play, but handing over the money is not where a bank’s role should end.”
Mark Stephens, CEO at CivilisedBank, explained that SMEs needed different support depending on where they were in their development as a business, what knowledge they had access to and what they wanted to achieve.
“Specialist banks can offer advice to SMEs in addition to their products, but they must put the right resource behind it and be clear about where they can and can’t help.”
'Banks have a duty to support customers, not just sell them products'
Ricky Knox, CEO at Tandem, added that products were nothing without the insight and advice to help find the right service and get the most out of it.
“This is true for personal banking customers and it’s true for business customers.
“Banks have a duty to support customers, not just sell them products.”
Giles Thorley, CEO of the Development Bank of Wales, stated that a key part of its business model was to provide dedicated portfolio managers who worked closely with the business after it had invested.
“As an investor, we have a vested interest in the business’s success, so it makes sense for us to leverage our own networks and help owner managers find the right mentor or adviser for them.”
Simon Healy, industry director for financial services in EMEA at Unisys, said that mentoring was important, especially for SMEs which were not financially savvy, but could be helped by a finance director or partner.
“The obvious [role] for banks to play is providing financial guidance and help with cashflow management.”
Simon explained that while financial services had been lagging in innovation, initiatives such as Open Banking would help to boost the provision of solutions to SMEs.
“We are going to see a technology-led acceleration in the next two to five years.”
Carl added that previously, SMEs had access to client-facing advisers, who provided the necessary business management support.
“The lack of this service has created an educational gap.
“The government needs to create advice centres where SMEs can easily access all they need to know about how to run a business.”
Andrew Rutherford, commercial director at Arbuthnot Commercial Asset Based Lending, said: “We recognise that business owners are not only seeking the optimal quantum, speed and structure for a specific transaction, they are also looking for a funding partner for the long-term that understands their business situation, challenges, industry and their ambitions.
“Today, creating greater certainty in the context of an increasingly interdependent, volatile, uncertain, complex and ambiguous business environment is an integral part of a funder’s role.
“In our experience, business owners like working with teams that have built their own businesses from scratch and understand what it is like to be ‘on their side of the desk’.”
The benefits of mentoring
Tony Eden, commercial banking director for London and the South East at Arbuthnot Latham & Co, said that in circumstances where funding was not available, a relationship-driven partnership enabled the banker to suggest strategies that may make a future funding requirement possible.
“Business owners recognise the huge value in specialist banks having ‘walked in their shoes’, by having gained experience to get into the mindset of their clients and build lasting relationships.”
Andrew added that understanding the drivers of long-term value to a business – in addition to their multiple asset classes – was “fundamental” to structuring the right asset-based lending solution for clients.
“This, in turn, has a wider impact in terms of more effective strategy formulation for acquisitions, management buyouts, refinances and corporate restructures, as well as better decision making and implementation.”
Could mentoring help SMEs find access to capital?
Piers Moore-Ede, head of digital at Company Debt, said that while anyone could start a limited company, there was very little training or support on offer to educate directors on how to do that efficiently.
“It's also worth mentioning that many people who apply for finance and fail, might actually have been accepted had an experienced mentor [helped them] with the application.
“So, mentoring may actually help SMEs find access to capital, rather than offering a distinct alternative to it.”
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