In today’s rapidly evolving and complex business environment, it can be hard for decision makers to choose the right direction to go. Time constraints coupled with a multitude of financial avenues can lead to confusion and a sense of overwhelm. Even when the destination is well defined, arriving at it can seem elusive. Knowing the path to take and how to unlock the door at the end can seem like an uphill battle. It is here that advisory networks can provide the much-needed A to Z, guiding SMEs towards the appropriate financial solutions tailored for their growth and break down barriers.

A recent report* revealed that only 62% of primarily loan applications succeeded in 2022. Notably, for SMEs attempting to secure external finance for the first time, this figure drops to 56%. This could suggest that a lack of experience and financial guidance might be inhibiting business expansion. However, looking ahead to 2023, 40% of all SMEs are projected to grow. Therefore, accessing appropriate forms of investment will continue to be a major enabler for SME innovation and growth (*BVA BDRC – SME Finance Monitor Q4 2022).

Bumps in the road

When seeking out any kind of growth investment there are many challenges that SME business owners contend with. While SME owners bring to the table a unique skill set critical for running their operations, the comprehensive knowledge required to seek and secure suitable finance can be overwhelming and time intensive. If inadequately prepared, approaching both traditional and alternative lenders directly can lead to a swift decline without explanation.

Prospective investors will always want to see a viable business plan that lays the foundation for discussions with growth-oriented businesses. These plans extend beyond passion and vision and demonstrate a robust business case, detailing key metrics such as historical results and detailed forecasts including cash flow and debt service. A poor-quality business case often leads investors to keep their financial doors firmly closed.

The task of researching a vast array of non-traditional funding options can be particularly daunting for SME decision-makers who are short on time and lack the specialised financial acumen. The alternative funding landscape has witnessed explosive growth in recent years, offering products tailored to virtually every business need. With most of these options having stringent lending criteria, finding the time to fully comprehend these requirements can stifle SME growth.

Lengthy and complex applications processes can be confusing and requires significant time and effort from SMEs to complete. Smaller businesses with limited internal resources may find following through to completion a daunting challenge.

These are just some of the factors that underscore the crucial role of a knowledgeable, experienced and skilled support network in navigating the course towards growth. Building a ‘team of all talents’, either in-house or externally, can provide priceless support for an ambitious SME owner. This not only lightens the everyday operational load but also allows business owners to channel their focus on core skills essential for spurring rapid growth and realising their firm’s full potential.

Letting go of the wheel

While alternative funders such as Frontier Development Capital (FDC) primarily work with advised deals, there are some business owners who chose to approach them directly.

There are several reasons why SME owners may refrain from enlisting the aid of advisers, however addressing these apprehensions can lead to more (and better) doors opening.

Underestimating Value: Some business owners might undervalue the contributions a corporate finance adviser can make. They often assume their personal expertise or their in-house team’s knowledge is sufficient.

Lack of trust and control: Entrusting sensitive information to an external party can be a daunting prospect for business owners, as can the idea of relinquishing control over critical decisions. Misunderstandings about the role of financial advisers and the ways they can foster business growth can fuel this reluctance.

Financial speed bumps: The costs associated with engaging an external adviser can deter some, particularly those operating within the confines of a tighter budget. The perceived expense can overshadow the potential return on investment an adviser might bring.

Time Constraints: The time commitment necessary to foster a productive relationship with an external adviser, as well as the need to clearly communicate business goals and strategies, can be seen as a further complication to the investment process.

Steering attitudes

Through the assistance of trusted networks, business owners can simplify the funding journey, helping them more efficiently traverse the complex financial landscape and secure suitable finance.

Clearing the path: Advisers can serve as intermediaries to guide crucial conversations. They can review business plans prior to application submissions to ensure accurate valuations and contents, articulate business growth visions to investors, explain investor expectations, and help negotiate funding packages to maximise potential.

Getting the green light: Each alternative investor and their financial products have their own set of criteria. From the most effective approaches to apply to the financial regulations to comply with, an adviser with prior knowledge of the route can expedite the finance securing process and reduce the instances of roadblocks.

Expanding horizons: Inviting advisers on board opens SMEs to a world of new and invaluable connections. These relationships weave a network of knowledge that would have otherwise remained untapped. Business growth is seldom a lone venture, and even if an adviser lacks the specific expertise needed, they can certainly guide towards someone who does.

SMEs are in a constant search for innovative financial solutions that can help fuel their growth and competitiveness. While traditional lending channels continue to play a significant role, the potential of alternative loan investment cannot be overstated. Among the various strategies that SMEs can employ to access this potential, networking with the financial advisory network stands out as a crucial approach.

Concluding connections

Early engagement with trusted advisers, accountants and regional finance brokers, business decision makers can narrow down the field of possible investment partners and find the road most suitable to travel. Simple conversations regarding fund availability, processes to secure investment and the preparation needed beforehand can help foster supportive investor relationships from the start.

However, first and foremost a business looking for flexible growth investment needs to be comfortable with the external team that accompanies them, weighing up the financial, emotional and time costs compared with the overall gain. Though some business management teams may have the experience, knowledge, and confidence to traverse the investment landscape without advisers, access to alternative finance may be easier to secure when there is already a foot in the door.

“While traditional lending channels continue to play a significant role, the potential of alternative investment cannot be overstated.”

Alternative funders such as Frontier Development Capital (FDC) will always support mid-market SME businesses seeking investment whether they go it alone or involve advisers. Part of Mercia Asset Management, FDC provides tailored and flexible long-term debt investment of over £1m for growth capital and shareholder transactions.

If you are a business seeking investment, visit www.frontierdevelopmentcapital.com/sme-funding to download our helpful information pack to guide you through our investment options.

Or, if you are part of the CF advisory network, connect with us at marketing@frontierdevelopmentcapital.com and support us getting businesses from A to B.