Small Business, Enterprise and Employment Bill

Written evidence submitted by Hilton-Baird Financial Solutions (SB 80)

1. About Hilton-Baird Financial Solutions

1.1 Established in 1997, Hilton-Baird Financial Solutions is an independent commercial finance brokerage that introduces businesses of all sizes, ranging from SMEs to corporate s , to the most suitable funding solutions on the market.

1.2 With expertise across the commercial finance market and specialist knowledge of the invoice finance sector, our access to more than 70 banks, independent lenders, equity houses and invoice finance companies means we can objectively match businesses’ requirements with the facility from the lender that fits, giving them the foundations to grow and reach their full potential.

1.3 Our affiliations to the leading financial industrial bodies, the Asset Based Finance Association (ABFA), the Finance and Leasing Association (FLA) and the National Association of Commercial Finance Brokers (NACFB), ensures we maintain the highest level of standards for our clients.

2. Overview

2.1 This written evidence is to be reviewed in the context of the lender referral scheme being discussed as part of the Small Business, Enterprise and Employment Bill ("the Bill") . Having operated within the co mmercial finance arena for more than 17 years and given we speak to business owners and directors on a daily basis regarding their ongoing challenges with regards to access to finance, we feel that we are ideally positioned to contribute to this debate.

2.2 We see the move set out in the Bill as an extremely positive one. Access to finance has been a great source of despair for businesses for a number of years now, with new initiatives and schemes sadly doing little to improve the flow of credit to those which need it most. This has resulted in many being unable to secure the funding they require to meet their wide-ranging objectives and, in some cases, giving up altogether. Similarly, the recent and sustained growth of the alternative finance market makes this an obvious place to refer businesses to.

2.3 However, from our experience as an independent broker, accurately matching businesses with the facility that meets their short, medium and long-term objectives is not a simple process. As such, it is fundamental that thought is given to the methods, organisations and platforms which are chosen to facilitate this referral process.

3. The challenges

3.1 There is so much more to referring a business to an alternative finance facility than simply providing a name to a funder. Far m ore interaction and input is required for this to work for all parties concerned and ensure an efficient and effective referral process can ensue .

3.2 Many businesses will only ever consider traditional lending as it’s something they’re familiar with, and from experience it can be difficult to convince businesses to consider the wide range of solutions which could be just as effective , if not more so . To reaffirm this point, recent research that we conducted amongst 238 business owners and finance directors found that 50% of businesses approach their existing bank manager when searching for funding. Many businesses also have pre-conceptions – whether accurate or not – of what facility they need at the outset of their search, with 26% rely ing on in-house expertise and 23% conducting their research online .

3.3 Further, in many cases businesses whose applications for traditional finance are rejected are in need of an urgent cash flow boost. This could be to plug a cash flow hole, to secure a valuable new contract, to expand or even to pay staff on time, so they need to be confidently, punctually and accurately referred to the solutions which will work.

3.4 It also doesn’t help that the finance industry has been disjointed for many years due to its constant evolution, a process which has accelerated in the wake of the recent recession. Terminology used by the various sectors makes it difficult to decipher the meanings, and there appears to be no cohesive approach. Coupled with the rise of ne w lending formats, such as peer-to-peer lending and crowd funding, and the ongoing advancements made in sectors such as asset based finance, the search for credit can be an overwhelming, confusing and time-consuming process.

4. Concerns

4.1 Given all of the above, w hilst we wholeheartedly support the referral platforms, we question the benefit of a blanket referral process without any added value. The fear is that as a standalone solution, no platform in itself will serve to reduce the confusion for SMEs and will not necessarily mean they are quickly matched with a provider who will be right for them , and the lender may be presented with businesses that fall outside their criteria. This will not provide much more than a basic search style platform on a par with the business consu lting a standard search engine.

4.2 The primary concern with this referral method is that it is designed for businesses which have already been rejected for bank funding , so their funding need may be critical. Having a multitude of platforms at this stage which fail to assist the business in focusing their search for the most suitable funding could mean that the funding will not be secured in time and result in the demise of businesses that are in urgent need of funding. Platforms must provide expertise and add value to be of assistan ce at this stage in the search.

4.3 Another consideration is whether a finance facility is even the right way to inject capital into the business. Take, for instance, the ongoing problem of late payment, which is arguably an even greater concern for businesses in the current economic climate. The result is that businesses often have thousands of pounds tied up on their sales ledger in the form of unpaid invoices; releasing this cash can be a more efficient and cost-effective solution to securing funding to overcome the impact this is having on the business’ s cash flow.

5. Solution

5.1 According to our research, 13% of businesses currently approach an independent broker when searching for new funding. Our focus at Hilton-Baird is to educate SMEs as to the wide range of ‘alternative’ funding solutions that are available to them beyond overdrafts and bank loans, which are typically rigid and inflexible by nature, and demonstrating the benefits that they can bring.

5.2 Our approach when speaking to businesses is entirely consultative. It is essential that the time is taken to understand their line of business, their customers, their day-to-day challenges and the direction in which they hope to take their business before we even begin to introduce relevant cash flow solutions, in order to gain their trust and confidence that other solutions are available and suitable.

5.3 I t is equally important to understand lenders’ funding appetites, culture, sector specialisations and service levels when introducing businesses to potential funding facilities. By understanding both the business and the lenders, we can facilitate quick access to the right funding solution and provider. W e are also able to work with the businesses to ensure that they present themselves to the funder in a way which is most likely to succeed , as we understand the underwriting procedures involved and have access to key decision makers.

5.4 Our existing online system allows businesses to pre-qualify themselves in two ways. The first is to use our comprehensive solutions engine, which highlights the three most suitable funding products based on their size, sector and specific requirements . Users are then given the opportunity to read more about these products, or request a call back from a knowledgeable and experienced member of our team . Visitors are also able to gain an indicative quotation for a range of funding products , which prompts our team to contact them to further explore the ir needs and wants in more detail , taking into account wider criteria such as how quickly the funding is required, what service levels are needed, whether it’s pure funding or whether back office support should be included.

5.5 Thereafter , w e can identify which lenders will match the culture of the business , as this is crucial to a successful funding partnership , and balance the cost of the facility with the value it will drive to their business. Whilst our established reputation and economies of scale mean we are able to secure improved rates for clients, we are conscious that the best option is not always the cheapest and that in order for the industry to maintain service levels for clients, competition should not be driven by cost alone.

5.6 With the benefit of our in-house IT team being able to deliver what’s required promptly and on spec, our platform would be able to support an online referral system which effectively amalgamates the solutions engine and instant quote tool. It would allow businesses to select their reasons for looking for funding and input their key details before being presented with comparative quotations from the most relevant funders. V isitors w ould then be able to select the option that best suits them , which in turn trigger s a notification to the relevant funder to follow up with a call . Effectively, this would act as an online, easy-to-use and hassle-free equivalent of our service over the telephone, although this option would still exist to those more comfortable talking their options through with a person, or through live chat.

5.7 However, it is vital that a clear designation criteria is set out for suitable platforms, including how they will ensure businesses’ information is properly protected ( and removed at their request ), and how p latforms must give fair access to credible alternative lenders that wish to join them.

6. Thank you

6.1 Thank you for considering our concerns and suggestions . We hope that these are helpful in terms of the decision you will be making on the most effective path ahead that will result in the maximum number of businesses being able to access the funding that is so crucial to their growth and survival.

November 2014

Prepared 13th November 2014