Pressure on UK trading businesses continues to mount, driven by rising costs, tight cash flow and staffing challenges.
When cash flow is under strain, even basic operations can become difficult, which can often sideline investment or growth plans. But, even in these circumstances, opportunities still exist and brokers can play a key role by knowing where to look and how to build confidence in businesses that need liquidity.
The latest figures from the Federation of Small Business (FSB) index show just how tough things are for SMEs. A huge 85% of small firms reported rising costs compared to last year, with nearly a quarter saying costs had increased by more than 10%.
The biggest cost drivers are utilities, labour and taxes. Just 8% of firms increased their staff last quarter and more than one in five had to reduce their headcount. The upcoming Employment Rights Bill and increases in National Insurance are adding yet more pressure to already stretched employers.
At the same time, half of firms reported a fall in revenue and only 50% of credit applications were approved. Nearly half of those that were approved were used just to manage cash flow.
So, while access to funding may be tight for many firms, it is more vital than ever.
THE BATTLE FOR FINANCE
High street lenders continue to tighten policy. For trading businesses, many of which have unpredictable or recovering revenues, the door from a mainstream lender often shuts after a quick glance at the last three years of accounts.
It’s fair to say that few trading businesses have a comprehensive grip on the variety of specialist lenders and financing options available to them. That’s where brokers play a vital role. It makes sense to introduce your clients to lenders that are willing to listen to individual cases and have the capacity and appetite to overcome complex circumstances to reach a solution.
For example, LHV doesn’t expect three years of strong, upward-trending profits before we will speak to a client. Our team of experienced lending directors and underwriters look at the full picture, not just historical accounts and potentially blend current performance with projections
If a business has made strategic changes, picked up new contracts or cut costs in recent months, this will be taken into account. The last six to 12 months of trading, if positive, matter. A turnaround story is worth hearing. A forward-looking plan can be built into the assessment.
This is very different to the rigid, formulaic approach still common with many commercial lenders. Where some lenders simply average historic figures to judge serviceability, we ask if the story makes sense. Can the client demonstrate that their business is back on track? Can they show why the future is more promising than the past?
THE BROKER’S PART
For a specialist lender to say yes, brokers need to be ready to present the fullest story possible. The numbers still matter, but context is everything.
There must be evidence of progress, even if the last few years were rocky. Brokers should be prepared to explain any poor results, point to specific improvements and give real examples of how cost savings or new business are making an impact.
Sometimes this will include benchmarking against other businesses the client owns. For example, if a hotel operator is buying a struggling site but has turned around two similar hotels in the past, that track record could be the key to a green light.
It’s also important to be clear and structured. This is about producing a slick pitch. It’s about being able to demonstrate a clear understanding of the client’s business and for lenders to appreciate that the broker has gathered the right evidence.
The most successful applications are often those that combine strong narrative with solid recent trading performance and a realistic forward plan.
KEEPING THE DREAM ALIVE
Brokers need to be prepared to get under the skin of a business, dig into the latest trading and present a clear route to future success.
This might mean showing how a client has adapted their operations. In our experience, many borrowers are looking at efficiencies. Changing opening hours, using technology to check-in at a hotel for example, or finding other smart ways to lower costs without cutting quality.
What lenders want to see is evidence that the business is in control, proactive and thinking ahead. These are the signs that a borrower is stable, even if the environment around them isn’t.
A FINAL WORD FOR BROKERS
Trading businesses are often overlooked because of complexity or dismissed too early based on old numbers. But with the right lender, a well-structured case and a broker who’s done their homework, there’s every chance of achieving a yes.
We might not offer a big list of off-the-shelf products. But that’s the point. We pride ourselves on providing solutions, not templates. And in the current climate, that’s exactly what trading businesses need.
