Alternative sources of finance

Ger Blake, Director, DSB, offers some insights on non-bank sources of finance that you might consider.

Recent statistics from the Central Bank confirm that the pillar banks are slowly improving the level of credit being made available to SMEs. The issue is that the SME lending market continues to be very concentrated, with Bank of Ireland and AIB the two key players, although Ulster Bank and KBC are starting to re-emerge as genuine competition. Access to credit remains a key concern for
most SMEs.

Aside from the banks, there are many other ways to seek to access credit and a plethora of options have emerged in recent times to fill the void left by the pillar banks, along with some other well-established sources of finance that have become more widely used due to the inactive banking market in Ireland since 2009.

Why credit may be required

A typical SME may need credit for a variety of reasons (be it business growth or expansion, asset leasing or simply working capital). The purpose of the capital required will determine your options and who you can approach for support. Funding support can be in the form of debt or equity and a thorough analysis of your needs should be undertaken to decide on the most appropriate for you.

The following is a sample of some alternative non-bank sources that you could consider:

• State supports or grants can be accessed through your Local Enterprise Office as there are now a wide range of Government supports in place to aid the growth of SMEs.
• EIIS tax-based equity funds are now widely available to a broad range of companies, including hardware retail. A company can raise up to €5 million in any 12-month period.
• Invoice Discounting, Supplier Finance and Asset Finance are increasingly available from firms such as Bibby, Close Brothers or Grenke.
• Micro Finance Ireland was established to deliver the Government’s Microenterprise Loan Fund, and can provide loans of up to €25,000.
• Various newly-established non-bank lenders are seeking to provide commercial real estate debt to SMEs for varying purposes. These include companies like Finance Ireland, Origin Capital and ProFunder, where funding of up to €5 million can be accessed.
• Crowdfunding platforms are also increasingly used by SMEs. The most popular would be Grid or Linked Finance.
• Private Equity investment is also again widely available via Business Angel networks, specialist finance houses or venture capital funds.

Each of the above options has active funders in the market right now, and each has different lending criteria and terms and conditions. Some important considerations to bear in mind, regardless of who you approach, are:

• All funders will require information on your business and have a standard application process in this regard. Be prepared.
• A key differentiator for some non-bank lenders is the faster pace of decisions and draw-down of funds. Because of less burdensome operational structures, you will get a faster decision.
• Some non-bank debt providers can charge interest rates that are considerably higher than the pillar banks. Ensure you fully assess costs and affordability before signing up.

Ger Blake, FCCA, is a Director at DSB with over 23 years’ experience specialising in business advisory and corporate turnaround. He has worked with many SME clients in the retail and hardware sectors.

This Business Support article featured in the July/August 2017 edition of The Hardware Journal.