Max Ward leads new business, Knight Debt Advisory. Here, he writes exclusively for Comms Business about funding and his view of the market together with how Knight can support business owners.
Large brands dominate the landscape; from Google, Amazon, Facebook & Apple in tech, Barcelona, Madrid & “The Manchester Two” in Football right through to Trump in US politics. It doesn’t matter which sector you are in there will always be dominant players. Yet, the Global Financial Crash (“GFC”) taught the world all too painfully that bigger isn’t always better and scale alone doesn’t render you infallible.
At Knight, we believe that it is SMEs – as opposed to the corporate giants – that are the engine of the economy. 99% of the 5 million companies in the UK, qualify as SME and they contribute approximately 50% of total private sector turnover.
Without SMEs the corporations would have no supply chain and a fraction of the customer base. Without SMEs over 60% of UK workers would be unemployed. So why do SMEs struggle for finance?
Here is an excerpt from the Bank of England archive that shows the percentage increase in credit issued to businesses, split between Large Corporate (Green) and SME (Pink).
It is clear to see that whilst there was an increased rate of in lending to SME from 2014 to 2016 since then we have seen a worrying declining trend from financial institutions. The numbers don’t lie, SMEs have a problem and therefore we all have a problem.
The reason for this phenomenon appears both complex and simple; in an era of increasing capital and liquidity pressure on legacy Banks (as a result of GFC), they are being squeezed to hold more capital at the same time as part-public ownership and consumer sentiment is driving an obligation to lend. All the while facing a necessity to innovate, keep relevant and retain attention in a digital age where consumption behaviours are now radically different to decades gone by. It stands to reason that it’s almost impossible to actually do all of these at the same time, so something has to give, and that is lending to SMEs.
Because it’s easier to focus credit support on a concentrated population of businesses than it is to serve the needs of a large diverse population, particularly where lenders, regulators and credit insurers believe SMEs to be less robust to economic pressures. The perceived easier bet of favouring large corporates requires less manpower and capital to deliver. This was (and still is) an opportunity for the challenger banks and non-bank lenders but, as yet, whilst Shawbrook, Aldermore, OakNorth, Paragon, Metro et all have a broader credit appetite, they don’t have market share to compensate for the contracted appetite of the larger legacy institutions, yet.
Where it gets exciting, however, is that as a borrower there are more options now than ever before. Fellow legacy banks are no longer the only alternative; challenger banks, digital banks, building societies, credit unions, alternative finance & peer-to-peers, private debt funds, pension and hedge fund private partnerships, foreign investment, corporate sponsored schemes, governmental programmes, family offices and high-net-worth individuals all pose, to differing degrees, a route to deploying funds into the SME arena and increasing consumer choice.
Raising money can be a hugely distracting and complex process, even when it goes well. When it doesn’t go well, the cost of distraction or the disruption caused by the wrong lender, product or structure can be significant, It’s important for business owners to understand which product is right for the needs of their business (now and in the future), who are the most appropriate lenders, how they are likely to behave over the course of your relationship and whether you are receiving good value.
I am proud and excited to be launching Knight Debt Advisory. The market is in a state of flux as legacy players reposition themselves, challengers scale and new entrants (bank and non-bank) launch new services. Being able to utilise my knowledge and contacts to support business owners was the driver for launching the business and with Paul Billingham, Adam Zoldan and the rest of the team at Knight Corporate Finance, I have experienced business partners alongside me to ensure we can deliver support to the channel to drive success.