Banks SMEs

New Research Shows SME Business Owners Face an Equity Dilemma

New research shows that SME business owners do not want to issue equity in their business to fund growth. The research, commissioned by alternative SME credit specialist Caple, reveals that more than half (53%) of SMEs would be unlikely to issue equity to fund growth.

More than three quarters (76%) of respondents would prefer to raise money through long-term debt rather than give away equity in their business.

But too often the lack of assets to use as security prevents them from raising finance to develop the business, according to the research of 300 business owners.  Instead they may have to consider giving up equity to raise finance.

Dominic Buch, co-founder and managing partner of Caple, said: “In a service economy like the UK, a lack of unsecured lending is a critical barrier to growth.

“SME owners face an equity dilemma.  They face the difficult choice of scaling back their growth or succession plans or diluting their ownership to fund them.

“This is especially true for established businesses that are too big for P2P platforms and too small for credit funds.

“Caple is a first in the UK in supporting these SMEs to access long-term unsecured lending based on the future cash flows of the business.  We do not ask for collateral or personal guarantees as security.

“Uniquely, the credit is complementary to existing bank debt, providing an attractive, blended financing solution”

The research also shows navigating the funding market can be a challenge.  Some two fifths (41%) of SMEs surveyed said it can be “very frustrating” trying to find the most appropriate form of finance to build their company.

The research demonstrates the role of accountants as SMEs’ most trusted business advisor.  Nearly two thirds (61%) of those surveyed said they would expect their accountant to have a good understanding of all the finance options available.

Caple originates loans through a local partner network of accountancy and business advisory firms.

Dominic Buch added: “At Caple, accountants and business advisors are an integral part of the process.  These advisors assess the eligibility of their clients for funding, prepare business plans and financial forecasts.”

The loans Caple facilitates are part of BNP Paribas Asset Management’s SME Alternative Financing direct lending platform, designed to inject more finance into the SME market.  BNP Paribas Asset Management aims to provide €1bn per year in funding to SMEs across Europe and €400m in the UK.

Caple has now completed three deals worth £9.25m in total for three UK SMEs.  Most recently, it completed a £3.5m fully unsecured loan with Smarts Plumbing Specialists.

Before this, Caple facilitated a £4.25m unsecured loan with Ralph Coleman International, a retail services business.  It first completed a £1.5m deal with Baltimore Consulting, a specialist recruitment services company.

Case studies

  1. Smarts Plumbing Specialists

Founded by John Smart and based in Heath Hayes, Smarts Plumbing Specialists (Smarts) has provided plumbing and heating services across the Midlands since 1972.

Smarts will use the £3.5m loan to fund its next phase of growth and introduce the third generation of the Smart family into the ownership of the business.

Alan Smart, managing director of Smarts, said: “This deal with Caple is ideal for us. Other funders weren’t able to support our ambitions of securing the funding we needed to grow while remaining in control of the business.  We’re now looking forward to developing the business and bringing the next generation of the Smart family into the ownership of the company.”

  1. Ralph Coleman International

Ralph Coleman International provides washing, storage, haulage and repair of plastic trays in the retail food sector.

The £4.25m deal enables a management buy-in and gives the new leadership team the control they need to drive the business’s next phase of growth.

Paul Hampton, director at Ralph Coleman International, said: “We’re delighted to complete this deal with Caple and secure the funding we need to grow the business.  We were attracted to Caple because of the unsecured debt finance it provides access to, which is very unusual for a deal of this size and scale.”

 

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