IDscan Biometrics resorts to becoming a captive as finance
dries up
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
“We don’t want to be bankers. We
want to sell our product and develop our product. However, it looks
like this is how we are going to have to do it.”
So says Tamlyn Thomson, who has just
started a captive finance operation for his business, IDscan
Biometrics, and is not particularly happy about it.
Thomson’s business is one of the
slowly growing number of companies to receive funding under the
Enterprise Finance Guarantee (EFG) scheme, which was launched this
year in an effort to support SMEs through government-guaranteed
loans.
EFG’s patron, the Department for
Business Enterprise & Regulatory Reform (BERR), claims that
£186 million (€211 million) of a potential £1.3 billion has now
been distributed through the scheme to some 2,059 businesses, via
26 lenders (of which 21 have lent money so far).
But how much genuine support is it
offering?
By virtue of a 90-page business plan
submitted to its bank, Lloyds TSB, IDscan was able to secure
£175,000 through the EFG scheme, which it has used to provide asset
finance for clients through deals worth an average of £6,000 over a
three-year contract.
Although the money has been crucial in
allowing IDscan’s sales to get moving through the setting up of an
internal sales-aid programme, it has come at the cost of a major
change in strategy.
The extent of this becomes clear when
Thomson was asked what advantages IDscan has gained through the new
in-house asset finance offering.
“We can carry on doing business.
That’s the only advantage,” he says sharply, before clarifying his
position.
“Just to make it clear, none of our
customers have been able to get asset finance externally for almost
nine months. It has been impossible, and the situation has created
a blockage in our cashflow.
“We are, in effect, doing the job of
the asset financers. In the long run it benefits us to the extent
that we take the margin the asset finance house would normally
take, but in the short run it does not because it works completely
against our business model.”
For some companies, such as franking
machine supplier Nationwide Franking Sense (NFS) (see Leasing Life 185, February 2009),
the build-up of an internal finance provision facility dovetails
with an existing strategy – NFS had previously run a small book off
its own revenue.
But in Thomson’s case, the transition
has not been so smooth.
Thomson explains that much of IDscan’s
liquidity has historically been fed into research and development
for new products, a situation aided by the upfront payments of
clients using externally sourced asset finance.
Now, he says, plans for product
design, new programmers and increased European distribution have
been mothballed while the firm’s capital is being ploughed into
sales aid.
Apart from these capital issues, the
move to internal finance provision has changed IDscan’s sales model
profoundly, and necessitated the uptake of a raft of new processes
and priorities for the formerly research and design-aligned
company.
Considering the sustained sales growth
that IDscan saw for seven consecutive months prior to the bank’s
clampdown on lending, it would seem its business would be much
better served if the EFG scheme was applied directly to
customers.
After all, with its client base in the
poorly-perceived leisure sector, the chances of external finance
coming in from a balance sheet lender seem as slim as
ever.
Fred
Crawley
