The range of different types of funding available to SMEs may sometimes feel a little daunting, as there’s a plethora of options available from a wide range of different types of funders.

Gone are the days of a loan or an overdraft facility from your bank being the only options for your business. The variety of options available is a huge benefit to SMEs. The key is finding the right fit for your business at the right time.

Through a series of articles, we’ll be speaking with our funding partners to explain the key uses and benefits of the different business funding options out there. Starting with Asset Finance, in a Q&A with Praetura Asset Finance’s Commercial Director, Ric Simmons.

Q: First of all, let’s have a brief introduction to Praetura Asset Finance – who are you and what do you do?

A: Praetura Asset Finance (PAF) are an independent asset finance funder who were founded in 2014. We’d seen a gap in the market that we wanted to fill, bringing the personal touch back to asset finance, putting the focus back on the client and putting the needs of their business (not ours) first.

We’re not a ‘tick box’ lender. The decisions we make are drawn by looking to understand more about each business and working with brokers and their clients to specifically structure our funding to suit their specific circumstances. We are a growing company, but that ethos will never change.

Key decision makers are involved at an early stage, which can speed up the process immeasurably. We also have the added advantage of being part of the wider Praetura Group, so we work collaboratively with the other companies in the Lending Division (Praetura Commercial Finance, Praetura Invoice Finance and Kingsway Finance) and our equity arm (Praetura Ventures) too.

Q: How can asset finance help SMEs?

A: Put simply there are two ways for businesses to use asset finance: to either fund the purchase of a new asset or to refinance assets you’ve already got.

The first option, a way of funding purchases, allows a business to invest in new, or upgrade existing assets via hire purchase or leasing facilities.

So, if you need new machinery to help your business expand or diversify, you want to upgrade or add to your fleet of vehicles or you’ve a new contract to service so need a new tractor, digger or dumper (or something else), asset finance can help.

When we’re talking about assets, this falls into two categories too – hard and soft. PAF offer hard asset funding facilities for vehicles and machinery for a wide variety of industries (including manufacturing, engineering, farming and forestry, haulage, couriers, printers, builders, plant hire contractors and more). If you’re looking for funding to purchase something like IT equipment, shop fit-outs, media and entertainment, healthcare or catering equipment (and more), that would fall into the soft asset category which our sister company Kingsway Finance (also part of the Praetura Group) provide funding for.

The second way to use asset finance is asset refinance funding, where you can unlock cash from the value of the assets your business already has. In essence, it’s a way to release equity from your business’ vehicles or machinery to help your business, or consolidate existing agreements to reduce monthly outgoings.

Q: What would you say are the key benefits of assets finance?

A: There are many! If we go back to the two ways to use asset finance, we’ll start with hire purchase and leasing… the most obvious benefit is avoiding the huge dint in your cashflow that an upfront purchase can make. Instead, the costs are spread in manageable monthly payments across a period of time and the asset is making money for your business while you’re paying for it. This way of purchasing your business assets means that you can stay up-to-date with the latest tech, production methods and preferred vehicle types and there are tax benefits for your business too (with hire purchase, the interest and charges are offsetable against pre-tax profits and with leasing the payments can be deducted from income as a trading expense).

From the point of view of asset refinance, I’d say the simplicity of this funding tool is the first thing that stands out: you’re using something your business already has, to provide you with the funding to expand and grow, to bolster cash reserves or to help consolidate debts. You’re not taking on any additional risk, and if you already have assets that are on finance, refinancing them could reduce your monthly outgoings too.

Q: Are you seeing any interesting trends in the SME landscape at the moment?

A: We are seeing a noticeable increase in the number of mergers and acquisitions at present, which is a trend that we expect to continue. As this happens, you’ll see another raft of businesses utilising asset refinance to assist with the capital raising needed for MBOs and MBIs (often alongside invoice finance facilities and other asset-based lending that our colleagues at Praetura Invoice Finance and Praetura Commercial Finance can assist with).

Consolidation I also expect to be a key watch word, both consolidation of companies and consolidation of debts. Due to a whole host of different circumstances combining including lockdowns, Brexit regulations, driver shortages, supply chain issues, fuel price increases and the rising cost of raw materials, huge pressure has been placed on the cashflow of SMEs across the country. The government-backed assistance through CBILS and BBLS has offered lifelines and cushions to many, but the interest-only payment period for the majority has now ended, or is due to soon, so there’s another set of monthly payments that the money now needs to be found for. And yes, asset refinance could help businesses in these situations too. Brokers and funders will work with businesses to review their options, reduce their monthly payments and release an injection of working capital (what at Praetura Asset Finance we call the ‘Refinance 3 Rs’).

Q: Do you have any top tips for SMEs when it comes to investing in assets?

A: Consider all the angles to ensure you’re getting the right type and right level of funding. This is where ‘consultant lending’ is key, which is something we pride ourselves on at Praetura: looking at the whole picture rather than just the immediate circumstances. For example, if you’re wanting to invest in a new truck to service a new contract, have you considered when the income will start being generated from the new work, has that been factored in, or does a deal need to be structured to take that into account?

Damian McGann Director at Funding Friends said

Its important that businesses look at their medium term cashflow position and whilst sometimes tempting to buy assets for cash structuring repayments over the likely useful life of an asset is often advisable to smooth out the likely peaks and troughs in company cashflows.

This is particularly prevalent at the current time when many companies are in growth / expansion mode as despite some short term challenges the medium term economic position looks encouraging. As such working with relationship brokers who can advise on what is available in the marketplace and advise both the best solutions and lenders to provide them is a sensible strategy.