Direct debits for SMEs: heads you win, tails you lose

Angus Dent
Posted by Angus Dent on 04-Mar-2020 00:00:00

You would have thought that any SME able to persuade its customers to pay by Direct Debit (DD) would have cause to celebrate – even more so the company’s creditors. After all, the ability to predict cash flow in a small business can be vital to leading a less stressful life, or even survival. Sadly, not everyone shares that view.

The problem is that some of the larger lenders don’t like not being in control of all the money in the event of a business failure. With a DD, a lender’s fixed charge becomes a floating charge and many of the larger outfits will not have any of it, even though they would still receive the lion’s share of the proceeds in an administration/liquidation scenario. They quite literally turn away sensible, quality borrowers simply because the money comes into the company’s coffers through DDs. How crazy is that – and how inflexible and downright greedy?

Fortunately, not everyone in the business of lending to SMEs adopts the same attitude. Loans are not a ‘one size fits all’ financial product, especially when it comes to smaller, usually younger companies starting out. Alternative lenders like ArchOver are using technology to streamline and improve processes that once would have taken weeks or even months. We are also looking at other, less traditional asset forms for loan security.

Provided due diligence is robust and thorough to reduce the risk of failure in the first place, lending decisions are usually both faster and better. Just as importantly, smaller lenders have the ability to take a view – they are not trying to shoe-horn borrowers into one rigid product that effectively forms part of a high volume production line designed to keep life simple for the lender.

At the end of the day, enterprising alternative lenders are adapting to accommodate the needs of borrowers because we too, are keen to attract new customers. We don’t sneer at loan applicants and treat them with suspicion, and most definitely we are not looking for reasons to turn business away because it doesn’t conform to a convenient formula. A floating charge is still a charge and, if necessary, we can find other ways of saying ‘yes’, possibly by reducing the size of the advance. Either way, SMEs attempting to bring order to their business in these rocky times should not be penalised.

Topics: business lending, business loans, Corporate Governance, lending, loans, p2p, p2p lending, small business, Direct Debit, Cash Flow

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