As any individual trying to swap banks can attest, the exit of KBC and Ulster Bank from the Irish market is stressful for individuals. For business owners seeking working capital and other forms of commercial finance, it is more worrisome still.
In his report last year, Credit Review Office boss John Trethowan pointed to a swathe of businesses emerging from the pandemic that may well be “unattractive to bank lenders and their risk appetites and policies”, but which, with the right support, could be remediated.
Yet the supply side of the SME credit market was already constrained, “and with the exit of Ulster Bank and KBC will become even more so”, he warned.
Not alone do banks have “little appetite for giving second chances to those who have failed or required financial restructuring in the past”, but they are not too keen on start-ups either, he said.
The hope now is that in place of so-called pillar banks, the arrival of new non-bank solutions could help, including Dutch fintech Bunq, which entered the Irish market in May.
Bunq, which was already available to people in Ireland through its Dutch IBAN, is now the first neobank with an Irish IBAN, making it a primary bank account option enabling customers to easily set up direct debits and make and receive payments.
Bunq’s opening here follows its recent acquisition of specialist lender Capitalflow. In addition to the current accounts offered by Bunq to customers looking to switch from KBC and Ulster Bank, Capitalflow continues to offer equipment and vehicle financing, and commercial property loans, along with cashflow facilities like invoice discounting to Irish businesses.
Capitalflow is a member of the Irish Asset and Invoice Finance Association (IAIFA), a lobby group whose members include banks such as Bank of Ireland Commercial Finance and AIB Commercial Finance, as well as non-bank service providers such as Bibby Financial Services, Close Brothers and Grenke Finance.
Figures from the IAIFA show a 25 per cent uplift in the level of sales generated by members through their invoice finance facilities, which totalled €8,124 million in Q1 2022 compared to €6,523 million for Q1 2021.
In fact, just over €1 billion of funding provided by invoice finance is being utilised by Irish companies at any one time.
It suggests that more Irish companies, particularly SMEs, are using invoice finance to fund their increased turnover and growth ambitions.
Though it can be an expensive solution, the main benefit of invoice finance is that it offers businesses immediate access to funds outstanding from their unpaid sales invoices, making income they have already earned available immediately without having to wait for sales invoices to be paid.
At a time of cost inflation, with payment days currently averaging 46, anything that speeds up payments will be welcome.
But as well as using invoice finance to improve day-to-day or seasonal cash flow fluctuations, according to the IAIFA companies are now using the facility to finance growth plans such as investing in infrastructure or equipment, merger and acquisition activity, MBOs and MBIs. It’s even being used to invest in sustainability activity and explore new markets, it says.
With the total funds available to Irish companies standing at €2.9 billion, a spokesperson for the association reckons there is “significant further capacity available from members to provide more finance to more Irish businesses in the coming months — a significant point when we look at the upcoming exit of Ulster Bank and KBC from the marketplace,” she says.
When it comes to invoice finance specifically, some traditional operators will remain in the market, such as AIB Commercial Finance Ltd and Bank of Ireland Commercial Finance, but there is also a range of non-bank options offering the same service.
“We would also encourage Irish firms to consider a range of financial options that, a number of years ago, they may not have considered. Business owners now understand that invoice and asset-based finance facilities provide an accessible way to improve cash flow, or fund ongoing growth, without taking on additional debt,” she said.
“We would also recommend that businesses give themselves plenty of time to organise any required changeover of funding. No two providers are the same, so it’s important to do your research on the options available. Then, do a comparison on service and cost before finally choosing the provider that best suits your individual business needs. A lot of Ulster Bank customers are proactively talking to our members, and there is a significant appetite from our members to help these businesses.”
New tech-driven solutions are emerging too, such as Loanitt. Though only established in 2019, it has become one of Ireland’s largest and fastest-growing credit intermediaries, providing car, agricultural and commercial finance.
It has developed innovative technology and open banking solutions which streamline the credit application process and remove the need for documentation. Its app simply speeds through the user’s bank accounts analysing data in such a way that they only have to sign up once to apply for a loan from numerous lenders, saving businesses time.
Another innovative newcomer is Swoop Funding, a platform that prompts a business towards the debt finance, equity investment or grant award it doesn’t just need but is most likely to get.
It integrates all a business’s data points online, including bank accounts, accounting software and Companies Registration Office information, to inform its guidance.
The platform analyses the data to establish key metrics such as its debt/service coverage ratio, a measurement of the cash flow available to pay current debt obligations.
This is the number lending institutions look at before deciding whether to approve a loan or not but, because it is largely unknown to business owners, they too often find themselves declined for a loan they should never have applied for in the first place, according to its co-founder, Andrea Reynolds, youngest daughter of the late former Taoiseach Albert.
The platform promises to free up a business to do what it does best — making sales — while Swoop helps reduce its cost base by prompting significant savings too across banking, insurance, foreign exchange, international payments and utilities.
Swoop recently partnered with Isme to launch the Isme Finance Finder, which will provide SMEs here with a one-stop shop funding solution.
It’s billed as suitable for start-ups or businesses looking to expand, improve cash flow, refinance debt, acquire a business, purchase property, stock or invest in a new market. The platform can also be used to secure funding for big-ticket items such as vehicles, buildings, and equipment through its Asset Finance option.
Users also get additional perks such as access to an Isme Finance Finder hotline providing guidance on funding queries, as well as templates and tools on the dashboard to aid applications.
The launch followed Isme’s Bank Watch Q4 2021 report which demonstrated the credit challenges faced by SMEs, with loan refusal rates at 33 per cent and an increase from 65 per cent to 68 per cent of those surveyed who reported difficulties in accessing finance.
The online portal is open to all businesses across Ireland.
“SME confidence remains constrained, in an environment of high input costs and the war in Ukraine. Many balance sheets remain unrepaired after the pandemic. SMEs continue to finance themselves via internal funding or ‘bootstrapping’,” explains Isme chief executive Neil McDonnell.
“However, we also see opportunity in many sectors, with the OECD noting that Ireland has twice as many business creators as the EU average.”
Following two years of severe financial hardship for businesses across Ireland, he believes this is a year of opportunity for enterprises willing to be bold. “The Isme Finance Finder will be a one-stop shop for any SME seeking funding solutions for their next move,” he says.