SMEs Need Financial Advice More Than Extra Cash

11th May 2018.

With the Treasury Select Committee investigating finance for small and medium-sized enterprises, ICAEW Head of Corporate Finance David Petrie argues that there are finance options available, but the right advice could be more important.

Businesses are frequently in need of extra cash, whether it’s for expansion, to tuck away in savings, or even just to pay off late payers. However, this is not always the answer to all problems, and cash can be dangerous if it is not utilised correctly. More money does not equal invincibility, and if new financial strength is not protected, it is too easily lost. While there are numerous finance start-ups eager to offer alternative options for funding your business, many businesses will rush into the decision due to misinformation and a general ignorance of what is out there.

The priority should not be on throwing money at businesses but educating them on how to handle new financial power as well as the dangers that could take it all away. Following on from the launch of the investigation by the Treasury Select Committee into finance options for SMEs, ICAEW Head of Corporate Finance David Petrie has identified that UK businesses have moved away from the finance gap into a knowledge gap. Finding finance is no longer the problem it once was, and instead, businesses need to focus on finding the right advice.

At the Credit Protection Association, we not only improve our members’ financial ‘right now’ but also provide the credit management products and advice to protect their financial future.

Commenting on the Treasury Committee’s SME Finance Inquiry, Petrie said: “The select committee appears to be fighting the last war. Access to finance is not the problem it once was in the aftermath of the financial crisis, some 10 years ago”.

“Nonetheless, there are still many businesses which believe they should be advanced additional funding, but their bank takes a different view, often with good reason.”

Petrie argues that while the more serious problems in raising funding still and perhaps will always exist, companies require equity finance and a combination of relatively benign market conditions. This and previous governments have intervened to correct market deficiencies, and recent announcements have included even more generous allowances for so-called “knowledge-intensive” businesses and a significant boost to dedicated long-term equity funds, or “patient capital”.

As Petrie says: “While there will always be companies who believe they are deserving of additional funding, often what’s required is the right advice, not more cash. Some of these calls for more investment and intervention are now rather overdone.”

If the UK is to prosper in the post-Brexit landscape, businesses need to navigate the current financial battlefield. This means having all the knowledge at their disposal, knowing which institutions will help and which will hinder them. Now that the Bank of England has decided against raising interest rates consumers and business owners could be encouraged to borrow more. However, this could do severe damage to budgets and should be discouraged.

Attaining finance may not be the uphill struggle it was 10 years ago, but bank loans are still perceived as the easiest option. Falling victim to interest rates inflict damage on cash flow and business owners need to be advised of the options that do not. This is where credit management companies are important, as they offer financial advice on credit, debt and what could trip the business up.

At the Credit Protection Association, while we do utilise our expertise to free up our members’ cash flow, we also ensure they know how to protect it. Our credit checks and company directories educate our members about the villainy out there on the high street. It is important that businesses know more than simply how to grab some extra cash.