Alternative finance is experiencing something of a moment in the sun. And broker-led deals have no small part to play in the industry’s growing good fortune. There was this month’s announcement by the Chancellor, George Osborne, that banks are to be forced by law to refer on SMEs rejected for loans to alternative lenders. Then, there was the news from the National Association of Commercial Finance Brokers that May saw brokers secure more than £1 billion in funding for SMEs for the first time, with similar targets reached and beaten in subsequent months. And the latest Trends in Lending report from the Bank of England in July highlighted the increasing role of alternative funders in plugging the small business funding gap.
It’s all welcome evidence of the burgeoning influence of our industry. But we still have much work to do. Too many SMEs have never heard about the non-bank funding options that exist. Others are vaguely aware that there are new kids on the block in the funding sphere, but don’t really understand how these alternative sources of capital work in practice. I believe that one of the biggest barriers alternative lenders face is educating SMEs about what we do, and how that differs from the types of finance that have been available to them in the past.
As I pointed out recently on this blog, brokers are an essential part of this education process, explaining to their small business clients the workings of all types of alternative finance, from invoice factoring and asset finance, to peer-to-peer lending and short-term loans like ours. They have the power to make direct contact with businesses, describing business financing options and their suitability for different firms’ needs.
So, what are the questions that we hear most often here at Boost Capital from small business customers? These are the queries that you, as brokers, are also most likely to face. And what are the answers that you can give SME clients when talking about how short-term borrowing and Boost Capital, in particular, works?
What is a short-term business loan?
Put simply, Boost Capital’s specialism is in offering SME loans typically between £3,000 and £500,000 over a shorter-than-usual timeframe. But don’t assume that all our deals are small. Recently we arranged a £500,000 loan at short notice for a telecommunications business. And there are also exceptional deals where we can go beyond our usual lending limits. One retailer we worked with recently borrowed £700,000, for example.
Another aspect that makes Boost Capital’s short-term loans different is that we make lending decisions very quickly – funds are made available to successful applicants in up to five working days, and many loans are processed within 24 hours. But it’s the short lifecycle of our loans that surprises people most, I find. As said, our borrowing’s designed to be repaid quickly, over weeks or months, so that firms aren’t burdened with debt years after the funds required have been spent or absorbed by the business.
How do repayments work?
As I’ve said, our loans are structured to be repaid over a short period, between four and 12 months. Small, fixed repayments are made regularly and automatically through BACS transfers that leave customers’ accounts on a daily or weekly basis. Business owners know what the regular repayment sum will be before they receive their loan, and the amount is carefully calculated based on cashflow to ensure that the day-to-day operation of a company and its business expenses aren’t disrupted.
Some SMEs ask if early repayment is ever possible. It can be, dependent on the type of finance offering a business took out in the first place. But Boost’s funding advisors will discuss all these options with a business and its broker before any formal agreements are made.
What sort of business is eligible for a loan?
When it comes to industry sectors, Boost Capital welcomes SMEs from all walks of life. We’ve dealt with events management firms and surfboard retailers, commercial laundries and demolition firms. We’ve even had one skate park manufacturer on our books in the past. But a common characteristic of many of our clients is that they operate in fields that many mainstream banking providers often deem to be too ‘risky’ to merit lending. This includes restaurateurs and beauty therapists, franchisees, garage owners, publicans, dentists, wholesalers – the list of businesses that the banks regard with some disdain is depressingly long. However, what we see are hard-working enterprises with great potential for growth with the help of a little capital.
What we’re looking for is a business that has a bit of a track record – nine months of trading, at least. We expect them to have a positive daily bank balance, acceptable credit, and no worrying black marks against them in terms of excessive tax liens, bankruptcies or open judgements. But what we believe is essential is to judge an enterprise by its overall health, not just a credit check alone. Even a low credit score won’t necessarily mean a business is turned down for borrowing if the rest of its financials look robust.
What’s the application process?
Because we recognise that many small firms need funding quickly we‘ve intentionally designed our application process to be as simple and easy-to-manage as possible. All we require is one, straightforward application, not a series of complicated forms to be filled and endless amounts of bureaucracy before a decision is made. We’ll need to see some evidence of a firm’s trading history, proof of identity, plus a signed Boost Capital application form, of course. But our team won’t ask for detailed financial statements going back two or three years, nor will they demand to see the equivalent amount of audited tax returns, as many traditional lenders do.
Another thing that sets Boost apart is that we don’t charge any application fees or associated costs for processing loan forms. We want to keep paperwork and hassle to a minimum in order to get that all essential capital out to an enterprise swiftly, as we show here in our animated video. The brokers we work with tell us that this makes a great difference to their clients – and to them, in terms of keeping their own admin in check.
Many firms come to us direct through our website or by calling our funding advisors through our helplines. But we want to communicate via brokers, too. We believe that the intermediary market has the real potential to reach the greatest number of capital-hungry small businesses in the UK, and we’re keen to establish strong and lasting relationships with commercial finance brokers in all corners of Britain. We know that what we do is new even in terms of the alternative finance industry, which is itself young and founded on the principles of innovation. Boost Capital’s short-term loans are not a typical product for finance professionals to promote to their SME clients – I recognise that. But they do work well and small businesses like them, as attested by the fact that about seven out of ten of SMEs come back to us for a second or third tranche of funding. And, usually, we’re happy to give it to them, as long as their account is in good standing.
I hope I’ve helped to explain some of the questions that typically come up when we’re dealing with customers, and that brokers may encounter when talking to SMEs about Boost Capital for the first time. But if any intermediaries would like further information on what we do and how we might work together in the future, they can reach us via our website or by calling 01245 353 326.
Image courtesy of artur84 / FreeDigitalPhotos.net