Banks are stingy with cash when it comes to lending to SMBs. In Canada, one alternative lender, Bibby Financial Services, sees opportunity where banks may not — chiefly, explains Operations Head Calum Williamson, with manufacturing firms navigating their supply chains and seeking to improve cash flow.
No matter the industry, cash flow is oxygen to the small business — and, for that matter, the large business. And cash flow may be organic, originating from the daily give and take of funds coming in and out the proverbial corporate coffer. But for the small business, especially one that deals with a supply chain or multiple vendors, cash flow may have to, at times, come from other conduits — and we’re talking about lending, of course.
Earlier this month, Bibby Financial Services Canada announced a combined $4.25 million line of financing extended to a pair of Canadian manufacturing companies. In a release detailing the financing (the companies remained unnamed), Bibby Financial Services said the funds would be used to help with working capital needs and boost liquidity. The total tally of funding extended by the firm through 2016 was $300 million to about 250 companies across Canada, with verticals running the gamut, in addition to manufacturing, from logistics to staffing.
It’s no secret that banks have been reticent to lend to small businesses across several of those verticals. That reluctance paves the way for alternative lenders to step in and fill the gap.
In an interview with PYMNTS, Calum Williamson, head of operations at Bibby Financial Services Canada, said that manufacturing, in general, remains an “ideal industry to lend against” as the financing itself is secured against hard assets, such as inventory, plant or property. Yet, traditional banks, said Williamson, may be opting to lend to other industries on the assumption, for example, that domestic manufacturers may see competitive squeezing from firms competing on price, such as those located in China.
In addition, the banks may be caught up in stringent models, where, said Williamson, balance sheets or a few years of financial statements hold sway over lending decisions. But beyond numbers, said the executive, other sources of information can be useful, and they should be, and are, employed by alternative lenders such as Bibby Financial Services. He told PYMNTS that firms such as his are able to look at the strength of a family-owned business (and many smaller businesses in manufacturing and beyond fit into this mode) and, with what he termed “empathy,” look at the fact that money that is lent out “can help to put food on the table” or create jobs. Loans typically carry interest rates in the high single digits to mid-teen percentages.
Of the $4.25 million in funding announced, $1 million is going to an invoice discounting facility for an oil and gas-focused industrial services manufacturer. The largest chunk, at $3.25 million, will go toward a Canadian firm providing maintenance repair and manufacturing services for vehicles and is slated to help with receivables factoring. Williamson said that the factoring as a business practice (and cash flow tool) has yet to make the inroads it could in Canada, as opposed to, say, the U.K. This means, he said, that more education is needed on the factoring front. Beyond that, he said, Bibby Financial Services (with segments serving different verticals) can act as a broker of sorts to smaller firms looking to expand their supply chains.
Considering the next year and beyond, Williamson said, alternative lending should see strength in oil and gas (as energy prices stabilize) and also in staffing verticals as alternative lending can serve the function of ensuring payroll requirements are met.
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