Don’t Borrow, Unlock: the Pay Asset Finance Option for the SME Sector

Growth plans for many companies have been curtailed by the events of the last 18 months, with even the most optimistic predictions having to be scaled back. For the small business sector, the effects of the sudden economic slowdown have had the most significance due to reduced cashflow — the lifeblood of a smaller business.

Many organisations have been able to take loans or cut costs drastically, and these measures have provided some respite, although many companies don’t want extra debt burden, and many have no fat left to trim.

And because the pandemic has affected every organisation, late payments — often the biggest bugbear for SMEs — are more commonplace than ever. According to the UK’s Federation of Small Businesses, frozen payments’ impact is estimated to be £23bn in late revenues, affecting 62% of all smaller companies. Worldwide, traditional borrowing remains an option, but for businesses that had growth plans contingent on continued healthy balance sheets, long-term debt is far from attractive. Debt needs to be serviced, always comes with stringent caveats, and hampers agility as well as growth.

Crunch time for many will be Q4 this year, with emergency finance options tailing off (like the UK’s furlough scheme) and loans being called in. Many companies will be facing having to let staff go or other stringent cost-cutting. To avoid this and to add a much-needed boost to growth, optimising cashflow is paramount in the minds of many small business owners and Finance Directors.

New cashflow injection

There’s a new solution on the market at present that was initially targeted at medium-to-large enterprises but is now available to the SME sector: Pay Asset Finance from Hi. (We covered the Hi55 Ventures solution in this context in a previous article.) It helps companies get growth plans re-energised by unlocking a new source of cashflow – payroll.

However, this option does not involve crazy interest rates, insurance or other stipulations that are usually associated with payroll financing or opening new lines of credit.

Pay Asset Finance (PAF) is an innovative new product from Hi intended to give SMEs back their ability to recruit (not lay off), expand the business and get back to growth.

Rather than new lending, PAF takes over the salary payments for employers for 8-12 weeks, freeing the cashflow currently set aside for monthly payroll. Most businesses are currently letting this major asset lie dormant for much of each month. Our estimates put the amount at around £240k (US$300k) for a company employing 75 people, figures which Hi has confirmed.

Funds like this can make the difference between decisions having to be delayed hoping that a better economic climate will happen sometime and being in a position to be able to take those decisions and start acting on plans for the future. Instead of bemoaning current tepid market conditions, SMEs can plan, scale and grow, increasing their financial strength month on month.

There are undoubtedly opportunities that have arisen on the back of COVID’s effects; most companies, however, are not in a position to capitalise on them. For those companies that are getting on board with PAF, growth and financial resilience are back on the table. Now, companies keen to seize the opportunities they see are able to do so.

To read in more detail about Pay Asset Finance and your options to access and unlock your own working capital, get in touch with an advisor from Hi to discuss the options. Finally, a bit of good news for the small business sector.