Maximising opportunity for SME funding amid economic uncertainty

There’s a popular saying: “pain is temporary, glory is forever”. For many businesses though, the pain of economic uncertainty has begun to feel far from temporary, while the glory often seems so out of reach. If anything, uncertainty has become a defining feature of the market and wider trading environment.

Looking at the recent research we conducted among UK commercial finance brokers, the findings highlight just how mixed confidence remains. Nearly half of the brokers (49%) who responded described themselves as neutral on the outlook of the economy for the next 12 months. More than a quarter (28%) hold a pessimistic view, while only a minority express optimism for the UK economy.

The mood among brokers reflects the pressures facing their SME clients. While inflation has eased from its peak, the outlook remains pretty volatile. Meanwhile, operating costs remain elevated and interest rates remain higher than the ultra-low environment of the last decade that many SMEs were formed or scaled in. This is all against a backdrop of challenging government policy and economic uncertainty at home, and increasing geopolitical tensions abroad. We shouldn’t be surprised to see that business confidence and their ability to forward plan has been impacted.

As one broker told us as part of our survey, cashflow and uncertainty are key issues for businesses. Another pointed directly to inflationary pressures and the impact this has on profit margins, and in turn debt serviceability and borrowing potential.

Strategic rather than short term

Just because the market and wider economy is defined by uncertainty, it doesn’t mean businesses have to be too. Across the UK, we continue to see ambitious and well-run SMEs that are investing and looking to scale, using commercial finance as the vehicle to do so. This includes investing in technology, equipment and processes to scale up their operations, or more strategic investments such as business acquisitions.

Uncertainty doesn’t remove opportunity, it just requires us to think differently, to be more disciplined and more strategic. We have to look beyond funding as a refinancing sticking plaster or a quick fix for underlying cashflow weakness. Businesses throwing good money after bad rarely generate a positive outcome or sustainable results.

Funding must be well-structured – built around affordability, strong debt serviceability and demonstrate a clear rationale. Add in a reasonable risk profile and we have the makings of a sound funding proposition that is attractive to funders and ready to enable growth. All the above places advisers in a critical position to provide the right guidance to SMEs and puts fresh emphasis on the right partnerships with well placed funders. 

Pragmatic funding

Brokers need funding partners who offer both flexibility and good discipline – those who are willing to look beyond the application and surface-level metrics to really understand the business behind the case. That doesn’t mean getting sucked in by a good story, but understanding the realities for SMEs today, without losing sight of what makes good business sense for all parties involved. 

Funding partners who are able to assess cases holistically, rather than relying on rigid criteria are better placed to support viable businesses, all while successfully managing risk. We know from separate research that brokers are facing difficulty in securing this in the mainstream market – with limited funding options and low risk appetite. It’s one area where more specialist, boutique funders continue to come to the table for commercial brokers and SMEs. The same is true for non-standard assets and exploring cases from a broad range of industry sectors. 

A good funding partner will work with a broker to help viable cases move forward, all while challenging transactions where outcomes may not be beneficial for all parties in the medium to long term. Clear communication, transparency around funding appetite and credit decisions, as well as a truly collaborative approach will help brokers guide their SME clients through the current lending landscape and build confidence at a time when certainty is anything but certain.