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In our latest Dealmakers Wrap - contributed by members of the corporate finance community - Centric’s Rob Gilmore discusses alternative funding solutions

Necessary funds

The recession has forced nearly all SMEs across the UK to make significant cuts but with early signs of an economic upturn, can businesses in the Midlands be the first to capitalise on this and strengthen the region’s position as a leading area of UK business? Offering businesses more economically viable alternatives to London, cities in the Midlands are well placed to offer more competitive products and services. However, in order to do so, access to business funding is imperative.

Market conditions in 2010 were extremely challenging and SMEs suffered as a result. A number of high street banks were forced to review their funding criteria, meaning that many SMEs were refused funding and some were denied access to loans which had previously been agreed.

Frustratingly, we’ve heard reports of Midlands businesses being turned away by their financiers when they should legitimately qualify for funding. These businesses are getting a raw deal. They are not being considered according to their individual merits and are been dismissed as untenable or fall victim to a particular institution’s exposure to certain unfavoured sectors. Our view is that lenders must meet with business owners to fully understand and assess their needs, as well as their prospects.

Last year, there was a consistent need to deliver solutions where traditional sources of finance could not. As such, we have seen many businesses across the whole of the Midlands take advantage of asset-based lending (ABL) and invoice discounting.

Designed to be flexible financial solutions, ABL and invoice discounting both offer room for growth and, unlike a traditional overdraft, have fewer limits. In an unpredictable environment this level of flexibility is vital. Our clients often require additional working capital to respond to changes within their businesses. Management buy-outs (MBOs) are a classic example of this. In fact, because economic uncertainty has led many SME owners to delay their retirement, we expect to see significant rise in the number of MBOs over the next couple of years.

This form of finance is also an excellent way for businesses to react to demand or opportunities for growth. Very often, our clients want to purchase new equipment, expand into a different region or acquire other businesses. With a coherent business strategy in place, SMEs that are streamlining their operations, responding to opportunities and adapting to change are the businesses that will flourish post-recession.

A number of sectors, including telecoms, are poised for a period of consolidation. Those companies embarking on ‘buy and build’ strategies are likely to be more successful if they have a strong, flexible and supportive funding partner behind them who can move quickly and adapt to the opportunities that present themselves. ABL can work well in these circumstances either as part of a package of facilities or on a stand-alone basis. Last year Centric structured deals across 20 different sectors.

SMEs account for £1.48 trillion in terms of Gross Domestic Product (GDP) so, if economic recovery is going to take place, it is imperative that these companies are backed.

Rob Gilmore is business development director at Centric Commercial Finance in Birmingham