Alternative credit providers are proving their worth to the wholesale supply chain, writes Tan Parsons.
Since the economic recession of 2008, many wholesalers’ customers – typically the standalone convenience store or the side-street sandwich bar – have struggled to get bank loans. In turn, wholesalers have started offering their customers credit to help them when cash flow is tight. It has marked a substantial departure from the traditional cash & carry model, in which customers arrive in their vans, pay cash and take away their products.
This change has had the advantage of helping wholesalers’ customers to keep shopping when their resources have been stretched. But on the flipside, credit agreements have become increasingly drawn out and many wholesalers routinely wait up to 90 days to be paid after they have provided products to their customers.
Last month, Royal Bank of Scotland, which provides a third of all lending to small and medium-sized enterprises in Britain, said it is expecting to advise thousands of businesses to contact peer-to-peer lenders Funding Circle and Assetz Capital. The scheme was announced ahead of government plans to make such referrals compulsory, as a result of criticism that the biggest banks are failing to provide enough credit to a sector the government sees as important to stimulating the economy.
Alex Afek, director of alternative credit provider Got Capital UK, believes we are finally beginning to catch up to the US, where alternatives such as peer-to-peer lending and crowd-funding are much more widely accepted. His group offers loans to businesses including wholesalers, retailers and foodservice operators.
“With a bank, you typically are committed to the agreement for a long time and if you clear your debt, you get penalties for paying it off early,” he says. “In smaller businesses, you get a lot of unexpected costs and a lot of unexpected opportunities. If you don’t have the money that you need at the time, you are stuck. Let’s say you get an unexpected order – if you are short of cash to pay for the extra stock or extra drivers to make the delivery then you will lose out.”
Got Capital offers loans against borrowers’ future receivables and aims to offer a more flexible way for its customers to manage their debt than traditional loan providers do. Afek’s aim is to offer a service whereby his business understands its customers’ plans rather than deciding on loans based on their balance sheets alone.
Travalo founder Carmit Turjeman says: “Cash flow is one of the most crucial things for any business – particularly if you are in growth.” The entrepreneur, whose business supplies perfume refill applicators globally, uses both traditional bank loans and alternative credit providers to ensure her business has sufficient finance to keep expanding. Being able to choose a bank loan with a personal guarantee or a loan from an alternative credit provider gives you the flexibility to deal with both a big, well-established customer or a smaller and therefore riskier one, she says.
Sung Lee, owner of two Asian cuisine restaurants in Brighton, has used loans from alternative credit providers to develop site interiors and buy new kitchen equipment.
“It’s hard to get a loan from a bank in the time you need,” he says. “Investment is essential in my business because it allows me to make better quality food faster and that provides better service for customers. And that is very important if you are growing your business.”