Despite a sharp rise in demand among
SMEs for refinancing, sales finance companies are not aggressively
targeting this sector.

Asset-based lenders are not specifically targeting the SME
market enough despite a possible gap in the market, a cross-section
of Asset Based Finance Association (ABFA) members has revealed.

According to ABFA’s Q2 results for year ending June 2008, the
annual turnover bracket with the highest clients is £0 to £500,000
(€648,680) per annum.

However, out of six companies interviewed, only one, Close
Invoice Finance, reported concentrating on more than half of what
it considered to be SME customers in its client base, at 60
percent.

The next highest was Bibby Financial Services, focusing 40
percent on the SME market.

Companies interviewed included Barclays Asset & Sales
Finance, Bibby Financial Services Ltd, Close Invoice Finance Ltd,
Davenham Trade Finance Ltd, GE Commercial Finance Ltd and KBC
Business Capital.

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Rumours have suggested that the SME marketplace was ripe for
targeting, especially in light of the economic downturn resulting
in some smaller companies struggling to cope under the
pressure.

Talk of a migration to smaller markets has also come from the
potential over-saturation of
larger companies to invoice discounting and factoring.

The number of companies turning to invoice discounting and
factoring has been increasing across the board.

“From June 2007 to 2008, our money-out increased by 15 percent,
which is good growth,” said Kate Sharp, CEO of ABFA.

However, Sharp suggested that the SME market was not growing as
quickly as previously thought, attributing the most expansion to
larger clients. She put it down to over-saturation of sales finance
in the SME market.

“That’s a much more mature area of business and therefore your
growth rates are going to be smaller,” said Sharp.

Of the six companies examined, only Bibby Financial Services
said it was specifically targeting the SME sector, with the
remaining five spreading equal focus across the SME and
large/corporate brackets.

“The vast majority of businesses in the UK are at the
smaller end of the scale and that’s where the core of our market
is. It’s what factoring is designed for; we are looking at sales
ledgers rather than financial histories,” said Tracey Cotteril,
spokesperson for Bibby Financial Services. She explained that Bibby
concentrates on new start-up businesses, with a view on their
future sales.

John Bevan, MD of Barclays Asset & Sales Finance, said his
company was not focusing on the SME market despite recent
suggestions that they were, placing roughly 25 percent of their
business in that sector.

He added: “We’ve set up dedicated teams for each of the sectors,
so we have a specialism in each of them. We don’t deal specifically
with SMEs.”

The cross-section also showed strong variation in what
constitutes the SME market, with the lowest turnover bracket from
£0 to £250,000 compared to the highest, up to £10 million. Average
deals in the SME market also varied, ranging from £3,000 up to
£150,000.

A number of companies expressed an attitude that was more
“quality over quantity”, preferring to take on fewer
clients of greater size, as opposed to many companies with smaller
turnovers.

Business development and marketing director of KBC Business
Capital, Graham Barbar, said: “We’re not a volume player. We don’t
target ourselves in terms of client numbers. For us, it’s about
doing the right deals.”

In ABFA’s second-quarter report, £0 to £500,000 was the largest
bracket, with 18,679
clients.

The advance total for this band was £652 million. To compare
with the other end of the spectrum, the £100 million-plus turnover
clients number a mere 283, but are accountable for £4 billion worth
of business.

“Out of 48,782 clients at the end of the year, 93 percent are
SMEs,” Sharp explained.

The companies questioned reported good growth, which comes
following ABFA’s September 2008 Economic Report outlining a 15
percent increase in asset based finance year-on-year.

“Growth in asset-based finance exceeded the growth of total
lending to firms, which grew by 13.2 percent over the same period.
Asset-based lending is expected to increase as credit from banks
falls and the economic climate worsens,” the report says.

Nancy Smallwood