Amidst recent reports that external finance for small and medium sized businesses is at the lowest levels since 2010, independent corporate finance brokerage Embark Finance is bucking the trend, reporting its volume of deals completed in 2012 is in fact slightly up on 2011.
According to the sixth quarterly SME Finance Monitor, published by BDRC Continental* last week (28th November 2012), the use of external finance is at the lowest level since early 2012, with over half (57 percent) of all SMEs neither using any external finance, nor having immediate plans to do so.
“Whilst there is a great deal of truth in the findings of this latest research, deals activity at Embark has remained steady this year,” comments Richard Keenan, Director of Midlands-based Embark Finance. “In fact the number of deals completed in 2012 is slightly up – by in the region of 20 percent – on last year’s deal volume, albeit the size and value of a number of these deals is generally smaller than in previous years.
“From our experience and portfolio, this would suggest that it is the smaller, start-up businesses that are borrowing, rather than those that have been established for a few years,” he says.
“Indeed, we have seen a steady increase in the number of SMEs embracing alternative finance streams. So far this year, Embark has financed invoice finance deals totalling in excess of £7.5 million, for in particular a number of start-ups including a textiles business which had previously been turned down by its bank.”
He adds: “Anecdotally more SMEs are definitely sticking with what they have if they can help it and going as far as possible without borrowing. I think people have found a way of making do and won’t borrow unless it’s absolutely vital. Tough times lie ahead and 2013 will see lenders searching for new ways to get into deals, often by attacking existing lenders books, rather than seeking the new opportunities that are out there.
“As such, traditional bank funding is likely to continue to be scarce, but we maintain less usual forms of alternative finance could be the key for many SMEs, including Intellectual Property (IP) based pension-led funding, which can deliver a vital alternative funding boost, and is a realistic, but little-known, source of alternative finance for businesses.
“IP is rarely used to maximum effect, but it is an asset for a business that carries some intrinsic financial benefits, particularly tax benefits,” adds Richard. “Pension-led business finance is a realistic alternative to the traditional finance routes, and as a business asset, IP can be used in this way to deliver a cash injection, or as collateral on a loan against the pension. SMEs can really cash-in on their IP in this way.”