“In 2017/18 we started to realise that accountants were looking to bring advisory services into their business, and when the accountants work with the business to get funding, that unlocks other services for an accountant with their clients." - Ollie Maitland, co-founder of Capitalise.
Despite the financial crash of 2008 now being more than a decade ago, a lack of willingness among big banks to finance SMEs remains. This has compounded recently in the face of Brexit, the threat of recession and further economic uncertainty.
In that time, however, alternative funding options available to SMEs have greatly increased, with would-be entrepreneurs seeing an opportunity to fill this market gap that has been left open by this reluctance to lend from big banks.
Identifying the opportunity, and enabled in no small part by technology, hundreds of businesses offering various forms of finance grew out of the ashes of the financial crash. As a result, the alternative finance market has flourished into a thriving industry.
Despite economic uncertainty, in 2018 the UK had 5.82 million SMEs, an increase of 1.2 million since 2010. In the same time, the population of self-employed workers increased by 600,000. The demand for finance is there, and the alternative finance industry has grown with it, and was worth £6.2 billion in 2017, growing from £4.6 billion in 2016.
There is a mindset shift occurring too. In a survey undertaken by Thincats.com researching how businesses get funding, it was found that just a third (31%) of businesses less than 10 years old approach their bank first when seeking funding, compared to 61% for businesses established between 10 and 20 years ago. These younger businesses are more open to choosing an alternative finance platform, with 22% of those surveyed saying they had. Clearly, this presents an opportunity for accountants.
As many accountants see their roles shift from compliance to advisory, the ability to assist SMEs with finding and securing finance is an opportunity to add value to a practice. However, for anyone who has looked for alternative finance for a business, they will know how many options are available, and determining which option is the best fit is a challenge for both business owners and their accountants.
Capitalise, founded in 2016, is a platform that matches accountants and their clients to sources of alternative finance, and is looking to address this challenge. Ollie Maitland (pictured above), Co-founder and Chief Product Officer at the organisation, said: “In 2017/18 we started to realise that accountants were looking to bring advisory services into their business, and when the accountants work with the business to get funding, that unlocks other services for an accountant with their clients.
“So, it might be that they’re preparing forecasts, it might be that they are preparing budgets, it might be doing actual accounts of course. For the banks preparing funding, they might need to review accounts, so all of these things actually are things an accountant can add value to if they’re running the process.”
Maitland says that the accountant’s role has also expanded due to the swathe of local bank closures. This has limited access to bank managers who traditionally would have been the first point of contact for a business looking for finance. This is no longer the case, and businesses are now asking their accountants what their options are.
“About 15,000 bank branches have closed in the last 15 years, and so we estimate about 50,000 bank managers have left the market,” explains Maitland. “What we realised is that the businesses needed someone to go to. Increasingly accountants are looking for advisory services to bring into their practices and so why can’t the accountants be the new bank manager? So why can’t the accountant be the access point into the financial services market?”
This is where the likes of Capitalise, and other services such as Funding Options, come in. Acting as matchmaking services, these platforms allow accountants to add a funding matchmaking service to their practice, without requiring a full picture of the alternative finance market themselves.
Conrad Ford, founder and former-CEO at Funding Options, another service that connects businesses to finance, says that understanding the market is the biggest challenge for accountants. “The alternative lending market is very, very complicated. There are literally hundreds of providers, and their criteria and who they will lend to is constantly changing.
“By definition of their qualification, they have a broad understanding of the types of finance available. But it’s very difficult for them to keep abreast of the current reality of who’s out there and who’s offering what. That’s the great challenge. When we speak to accountants, and we speak to them a lot, that’s really the challenge that we come up against again and again.”
Being tasked to find finance for a client can be a worrying task for an accountant. While the shift from compliance to advisory is a good opportunity, changing how you work and what your practice offers is a challenge. Services such as Capitalise and Funding Options can allow accountants to broaden their offerings without learning the market in finite detail.
“The reality is, if you’ve got one of your most valuable clients, and you do lots of compliance-related work and they’re very happy with you, you’re doing a great job,” says Ford. “But then suddenly, they have a critical financing need. You don’t want that customer to be unhappy, but also you don’t necessarily have the experience and the skills in the current market to actually help.”
These platforms aim to give easy access to the lending market. In basic terms, they could be likened to comparison websites, like ‘comparethemarket.com’ or ‘Booking.com’. In reality, they are more akin to a dating website or matchmaking services. Businesses and lenders input information into the platform which is used to determine what funding is best for that business’ needs, and which lenders are most suitable. Once a match has been found, the platforms open a line of communication between lender and accountant, or lender and business.
Capitalise is aiming a step higher, and also operates a ‘pro’ service which is used by larger accountancy firms looking to offer funding access as a distinct part of their practice. While their ‘light’ service is free, and allows users to input data and for lenders to browse potential lendees, the pro service offers training to use the platform and members of the Capitalise team communicate with the firm directly.
“So far we’ve got 2,000 accountants using the platform across 500 firms, with the likes of BDO, PKF, and Armstrong Watson on board, while Bishop Fleming has just launched a product with us,” says Maitland. “We’ve got about 12 or 13 of the top 50 firms using Capitalise for their small business funding.”
Speaking on what he hopes capitalise can achieve for accountants, Maitland says: “We’re creating revenue opportunities for the accountant. We realise this is a good thing for the accountant because they are looking to diversify their revenue streams in many cases, particularly with advisory work which is a higher margin.“Compliance work can be a lower margin, and so there’s a lot of low margin optimisation aimed at making stuff more efficient, and there’s a tech stack. I guess we’re looking at: ‘what is the advisory stack and can we go beyond that?’”
Banks still make up a huge portion of the SME lending market. To illustrate this, Funding Circle, one of the largest alternative lending sources which offers peer to peer lending, makes up just 1% of the market. Because of their coverage, banks can still cover high volumes of businesses looking for finance. They are also the cheapest, sometimes offering close to 0% capital, and are very safe.
The problem lies in the difficulty for SMEs to secure finance from banks, or at least secure the amount of finance they need. This leads to some businesses supplementing a loan they receive from a bank with funding from an alternative source. By becoming more aware of the alternative sources of finance, accountants can advise their client’s that there are options away from banks.
As Maitland says: “There’s a lender for every business. The problem with the banks is they’ll either decline you or you won’t even be eligible to apply, or they will often offer a much smaller amount. So, what we see in lots of scenarios is alternative finance is supplementing the bank lending. If, for example, you want to move office and you need to get £150,000 for your business your bank might offer you £50,000, it’s that extreme, and so you get £100,000 from another lender in the market. We do a lot of that work.”
Capitalise does not intend to be anti-bank, however, and instead wants to include banks on their system. SMEs contacting banks and requesting finance may struggle simply to talk to the right person at a bank, but Capitalise are looking to partner with banks to connect SMEs and their accountants directly to the right people.
“We are not anti-bank, so there might be a difference between us and other groups, other groups who are purely online based tend to be focused away from banks since they’re working with customers who haven’t met the bank’s eligibility criteria,” says Maitland. “We don’t want to be second place, we want to be first place, so the first point of access, i.e. what we’re saying to businesses is if you want to go to your bank you can go to your bank through Capitalise with your accountant.”
In addition to adding another service to a practice, such platforms will also enable accountants to be proactive when it comes to looking for finance on behalf of their clients. Accountants looking at their client’s accounts, or completing their VAT returns, are in a position to advise on when a business may need funding. Going to clients with options when telling them they need to secure funding will be more welcome than just a warning.
“What we are seeing in conversations with accountants is becoming proactive. It’s not so much that a client is saying, ‘help me with funding, I’m about to go under,’ but it’s a month before when they’re doing VAT returns, you can say, ‘your VAT returns have come in, it is due in this time, you don’t have enough cash in the bank, would you think about some funding?’” explains Maitland.
“By making it earlier you’ve got more options in front of you because you’re not forced into a last-minute decision, and that’s why we like to work with accountants as well, because they can see this early on.”
The option is there too when a client comes to their accountant saying they are planning on expanding their offices, hiring new staff or taking on a new project. Having hundreds of lenders accessible through their accountant will give SMEs more confidence when looking for finance, something that has been lost with big bank’s reluctance to lend to SMEs.
