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GE CapitalCapital@workSpeedy Hire PlcClub£44 millionRefinancePolestar GroupCID & Plant & Machinery£45 millionAcquisitionIAC GroupPan European Receivables Financing€125 millionStructured WorkingCapital FacilityJun-11 Apr-11 Feb-11UKN GroupCID£1.5 millionRefinanceIFB LtdCID£1 millionRefinanceSigma PlcCID£40 millionRefinanceMay-11 May-11 Jun-11Hewden Stuart LimitedCID, Inventory & Plant& Machinery£25 millionSyndicationKings Road Tyres LtdCID, Inventory & Trade Finance£15 millionVIMBOFogarty (Filled Products) LimitedCID, Inventory, Trade Finance& Plant & Machinery£9.5 millionRefinanceJun-11 Sep-11 Mar-11From refinancing and restructuring to buy-outs and acquisitions, whethera small domestic transaction or a large structured cross border transaction,we can help you unlock the funding potential in your assets.To see how GE Capital's ABL expertise can help companies make the most oftheir opportunities, contact us on 0870 8500315 or visit

RAISING WORKING CAPITALHow to kickstartoperation recoveryIf SMEs are charged with driving economic revival, where shouldthey look for investment? They could start with asset-basedlending and other forms of speciality financeSince the global economy tanked afterthe credit crunch, it has become harderfor companies, especially SMEs, toraise the working capital they need tofinance day-to-day activities as well asinvest in long-term growth.Effective working capital managementprovides companies with the flexibility to growand enhance their operations, to maintain orincrease profitability and to respond tochallenging economic conditions with more4.5%… a forecastof 2011 globalgrowth by theNationalInstitute ofEconomicand SocialResearch1.4%… the OECD’s2011 growthforecastfor the UKconfidence. But with availability of financestill an issue for many smaller businessesand working capital pinched, it may be thecase that SMEs now need to look at moreinnovative options to raise finance.John Bryson, professor of enterprise andeconomic geography at BirminghamUniversity, sits on the board and the lendingcommittee of the Aston Reinvestment Trust,which has lent more than £9m in loans ofbetween £10,000 and £50,000 to more than500 small businesses in the West Midlandsin the past 14 years.GROWTH AND EXPANSIONBryson reflects: “There are a lot ofcompanies that are postponing or deferringthings they would like to do that wouldgenerate profits over the long term. So theyare either not investing or they are investingin smaller, bite-sized chunks.”Bryson has also come across a smallnumber of companies that are experiencingworking capital shortages because they’redoing exceptionally well. “They need extracashflow to cover raw materials, stock, workin progress and rising receivables,” he says.4DIRECTOR BETTER CAPITAL, BETTER BUSINESS

Credit crunch: “One of the keyuncertainties is not so muchthe availability of credit butthe price of it,” says the IoD’sGraeme LeachIn fact, there are many reasons whybusinesses may want to raise more workingcapital – to boost growth, invest in newplant or machinery that improvesproductivity, or simply to provide a moresolid financial cushion that will help themweather future market uncertainties.The key problem for businesses is theturnaround in lending to UK firms that hashappened in the past four years. Before thecredit crunch, net monthly lending was£7.4bn in 2007. That fell to £3.9bn in 2008and went negative in 2009 with net monthlyrepayments of £3.9bn. There were netmonthly repayments of £2.1bn in 2010 and£2.5bn in the first three months of 2011.SUPPLY AND DEMANDGraeme Leach, chief economist and directorof policy at the IoD, says this can’t all beblamed on the banks. “It’s a demand andsupply issue,” he says. “Many SMEs continueto deleverage and repay bank debt. One ofthe uncertainties at present is not so muchthe availability of credit but the price of it.“The banks will point to the very largeundrawn credit lines, while SMEs will pointto the cost in terms of the spread over baserates or personal collateral required.”But when it comes to accessing finance,not all SMEs are equal. Research from theFederation of Small Businesses (FSB)discovered that 55 per cent of firms withfewer than 10 employees had not applied fora bank loan within the past year becausethey expected to be turned down.“This will have a much wider impact onthe economy as small firms make up morethan half of GDP,” warns John Walker, theFSB’s national chairman.Small wonder then that more companiesare seriously considering alternative ways toraise capital – such as asset-based finance,leasing, business angels and venturecapital – that could be better for theirbusiness and help them to build a moresustainable future.Choosing the right financing option hasprobably never been more critical. Finding aprovider that has a deep understanding ofyour company, its assets and your industry isthe crucial next step.£9m… the amountloaned tosmall firmsin the WestMidlands bythe AstonReinvestmentTrust55%of firms withfewer than10 employeeshave notapplied fora bank loanwithin thepast yearNOVEMBER 2011 DIRECTOR 5

FINANCE SOURCESCreative solutionsHow is alternative finance different to bank lending? Here’s ourquick guide to what it is and where to find itDirectors who find that traditional bankfinance, such as overdrafts and termloans, are no longer available shouldnot despair. There are plenty of alternativesources of finance.ASSET-BASED LENDINGThe most common form is invoicediscounting. The lender advances a givenproportion (usually around 80 to 85 percent) of invoices issued to approvedcustomers. In July, total funding availableto invoice UK companies using invoicediscounting was £21.1bn.“Right now, the invoice finance industry isuniquely placed to assist small businesseswith cashflow requirements,” says KateSharp, chief executive of the Asset BasedFinance Association. It is also possible toborrow against other assets includingplant and machinery as well as stock andwork in progress.LEASINGIn 2010, leasing companies provided £20bnof investment finance to UK companies.Leasing of cars and other vehicles is themost common form, but it is also possible tolease a wide range of other equipment suchas computers and machines.According to figures published by theFinance & Leasing Association, leasing andhire purchase is used by a third of SMEs with10 or more employees.Screen savers: leasingof equipment such ascomputers provided£20bn of investmentfinance in 20106DIRECTOR BETTER CAPITAL, BETTER BUSINESS

BUSINESS ANGELSThere are around 18,000 in the UK,according to the British Business AngelsAssociation (BBAA), looking to lend sumsranging from £10,000 to £1m. But angelstarget firms that have real growth prospects.Generally, they are looking for 10 timesreturn on their money invested over time,says BBAA chairman Anthony Clarke.PEER-TO-PEER LENDINGCalled P2P for short, this lending takes placethrough online marketplaces such as Zopaand Funding Circle. They match people withfunds to lend with borrowers who need cash.The parties agree terms between them.Funding Circle is lending around £1m amonth to small businesses, says co-founderJames Meekings.GRANTS AND GOVERNMENTSUPPORTNever easy to get because of complexapplication procedures. But directors maywant to consider two schemes. TheEnterprise Finance Guarantee (EFG)provides loans for SMEs that have viablebusiness plans but lack the security to seeka conventional bank loan. The ExportEnterprise Finance Guarantee scheme helpscompanies finance export transactions notcovered by the EFG.Of course, it doesn’t end there. Specialfunds exist such as the £2.5bn BusinessGrowth Fund, set up by five banks with thesupport of the British Bankers’ Association.For directors who are prepared to considertheir whole future business strategy, there isventure capital and private equity.So if the bank manager says “no”, don’tdespair. Instead, think creatively.The economic climateStephen Roper, professor ofenterprise and director of WarwickBusiness School’s Centre for Smalland Medium-Sized EnterprisesThere is a lot of uncertainty in Europeaneconomies and I predict fairly slowgrowth in Britain and across theeurozone in the next year to 18 months. Butthere are some pockets of growth, such asGermany and Austria.Export market opportunities remain andthe pound-euro exchange rate is favourablefor manufacturing and service exports. Butsovereign debt problems in Europe createadded uncertainties, particularly over currencyrisk. Many small companies I talk to are stillfinding it immensely difficult to accessfinance. My general feeling is that the lendingclimate for SMEs over the next year or so willremain difficult, despite the assurances of thebanks on lending.I would see more businesses turning toalternative sources of finance, such asasset-based finance. At the moment, this isan innovation for many SMEs, but it willbecome more normal in the future.Despite the problems, I believe there arehuge global opportunities for SMEs. They’remore flexible and agile than large corporatesand this gives them tremendous advantagesin export markets.NOVEMBER 2011 DIRECTOR 7

INDUSTRY LESSONSCase history 1:Rosehill PolymersUsing traditional and alternative sources of finance,this UK manufacturer continues to innovate and growAlex Celik, managingdirector of RosehillPolymers, has somegood advice when it comesto financing a small ormedium-sized company’sworking capital: “Don’t putall your eggs in one basket.”The 22-year-old WestYorkshire company, whichexpects to post a £25mturnover this year, hasused a mixture of bank andalternative sources offinance. “We’ve seeninstances where banks haveall the finance in a companysewn up and have had nohesitation when things getdifficult about pulling theplug,” warns Celik.As part of its sustainableInnovative: Rosehill Polymers has used invoice discounting provided by GE Capitalfinance portfolio, Rosehillhas used invoice discounting,provided by GE Capital,virtually since it launched. Ithas also sought bank financebut Celik says that Rosehill’sHigh Street bank was notalways good at takingdecisions about grantingloans and overdrafts.“The frustration we havewith banks is that it’s verydifficult to speak to anyonewho can actually make adecision,” he says. “You mayhave someone with a fancytitle see you, but they thenrefer the matter to a creditcommittee which doesn’thave a full understanding ofthe business.”As well as using invoicediscounting, Rosehillhas also successfully securedasset-based finance on itsunencumbered plant andmachinery. Initially, this wasfrom a High Street bank butafter the credit crunch thebank pulled out. Celik had totransfer the borrowing to analternative finance provider.It is not always simple toraise finance on plant andmachinery because ofdifferences of opinion aboutwhat the kit is worth. ButCelik says: “We have found itmuch easier dealing withalternative suppliers ofbusiness finance.”8DIRECTOR BETTER CAPITAL, BETTER BUSINESS

Web win: Welland Power Engineering used anonline lending network to help it expandCase history 2:Welland Power EngineeringFrustrated at slow bank lending, the company turnedto a peer-to-peer web network for financeWhen Charles Farrow,a director ofWelland PowerEngineering, found hecouldn’t raise workingcapital quickly from thebank, he turned to theinternet. Farrow raised£75,000 from peer-to-peerlending network FundingCircle to help fuel theLincolnshire company’sexpansion into Europe.“The bank didn’t give us ablanket ‘no’ but they wantedus to revalue our propertyand do some other thingsbefore considering the loanapplication,” he explains.Farrow found it easier toraise money from FundingCircle. “I filled in an onlineapplication form, which took15 minutes.” Then FundingCircle conducted a creditcheck. After that, it invitedits users to bid to lendmoney to Welland.SIMPLE SOLUTIONSIndividuals and companiescan offer to lend in unitsof £100 upwards. Farrowreckons that between 100and 200 individuals andorganisations contributed tothe £75,000 Wellandborrowed. The loan wasaggregated by FundingCircle so that Welland has tomake only one repaymenteach month to keep theadministration simple.“The system works verywell and the more peoplebid to lend you money, themore the interest rate youpay comes down,” saysFarrow. Over three years,Welland will eventuallyrepay £84,363.Farrow first spotted thepotential of peer-to-peerlending when he becamea lender on Zopa, anothernetwork. He says other smallcompanies should considerborrowing on the internetand other sources of finance.“The key is just to have ago,” he says. “It doesn’ttake much time to make anapplication and you don’thave to decide whether totake up the loan until youknow the terms on which it’sbeing offered.”And the process is quickcompared with many banks’ponderous lending policies.Welland received its moneywithin 18 days of making theloan application.“It means we’ve been ableto kickstart our growth plansmuch earlier than expected,”Farrow explains.NOVEMBER 2011 DIRECTOR 9

BEST PRACTICEHow to make yourapplication countWhen it comes to finance forbusiness, there are two sides tothe coin: the lender’s view andthe borrower’sThe lender’s viewWhen GE Capital weighs up anapplication for funding from acompany, it starts with the qualityof the management and their understandingof the business and the market in which itoperates, says John Jenkins, chief executiveof GE Capital UK.“We want to see enough information toshow that the management understands thekey drivers of the business,” says Jenkins.“And we’re also looking for consistency – so,for example, if the business plan sets outcertain objectives, we like to see that they’vebeen achieved as planned.”Jenkins says that meeting members of themanagement team is critical. That maymean the chief executive, financial directorand, depending on the size of the business,possibly the treasurer and commercial“We want to see enoughinformation to showthat the managementunderstands the keydrivers of the business”10DIRECTOR BETTER CAPITAL, BETTER BUSINESS

director. Historical financial information isalso crucial. “That tells us how the businesshas reached where it is. It can show thatthere’s been a consistent record of deliveringon forecasts,” says Jenkins.It helps, too, if all the information can bepresented in a clear and concise businessplan. “We’re also looking for a willingnessto work with the lender to build a clearunderstanding of the business and whatdrives it,” says Jenkins.What turns off lenders are nasty surprisesthat weren’t anticipated in the original loanapplication. The quality of the collateraloffered against the loan is also important.“It partly determines the level of support alender can provide,” says Jenkins.Businesses which clearly demonstrate thatthey can deliver on their strategy are goodcandidates for lenders.The borrower’s viewAlex Celik, managing director ofRosehill Polymers, has long experienceof using alternative finance.He advises: “Be very careful aboutchoosing your supplier of alternativefinance. It is a less-regulated area and thereare lots of start-ups. Do your homework andmake sure you’re getting into bed withsomebody who is going to be there in a fewyears’ time. Make sure that you’ve sorted outthe terms and conditions of any transactionso that you know what you’re getting.”It’s also important to submit a crediblerequest for finance. Alex White, a partner ataccountancy firm BDO Stoy Hayward, hasyears of experience helping SMEs seekworking capital. He says it’s important to“Do your homework andmake sure you’regetting into bed withsomebody who is goingto be there in a fewyears’ time”think through a funding application fromthe point of view of the lender. “Lenders arefundamentally interested in how they’regoing to be repaid,” he says.A successful application starts withgood quality profit-and-loss and cashflowforecasting. “Then look at some what-if?scenarios,” White says. “What wouldhappen to your cashflow if the companygrew faster or slower than you anticipate?You need to understand the cash profileof the business and how that would beaffected by sensitivities in the marketplace.If you’ve done that you can make sureyou’ve got headroom in your workingcapital needs.”He adds: “When you submit yourapplication, show the lender that you’vethought about the business. Demonstratingto the lender how it is going to be repaid isfundamental. If you don’t make the effort todo that you won’t get its confidence.”FOR MORE INFORMATION…visit email businessfinance@ge.comNOVEMBER 2011 DIRECTOR 11

GE CapitalWith finance from GE Capital,Hanson Springs bounces ahead…A family business with a solid reputation for quality and customer service,Hanson Springs has become a world-leading specialist spring manufacturer.GE Capital has played a vital part, financing Hanson Springs’ growth in the UK.“GE Capital’s knowledge and understanding of our business has affordedus the flexibility to grow and get the confidence needed from a long termfunding partner.” Malcolm Hanson, Managing Director, Hanson

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