22 Nov 2014
- Lenders using ‘limited’ information in decision-making are slow, risk-averse, and ‘ripe for disruption’
- ‘New breed’ of complete finance professionals needed to help finance businesses
Finance providers must change the way they treat small businesses seeking support, or leave themselves wide open to disruption, claims a new report by ACCA (the Association of Chartered Certified Accountants) and Longitude Research.
The global professional body’s first State of Business Finance review combined five-and-a half years of economic survey data with considerable research and in-depth case studies on accountants’ experiences of raising finance. It found that business financing is now easier than it’s ever been since the crisis, yet small businesses are still finding the experience of fundraising much more challenging than their larger counterparts.
Business financing conditions are an important matter for ACCA, which revealed that it has about 50,000 members regularly involved in helping businesses access finance, including over 10,000 in the world’s capital markets.
A major concern to ACCA is the fact that a substantial share of business financing is still essentially only available on a ‘risk-free’ basis: the recipients must be seen as risk-free, or provide significant security. The global body stresses that neither ‘risk-free’ status nor collateral truly provide the safety credit providers seek, yet obsessing about the two starves some of the most promising businesses of finance. ACCA believes this problem will intensify as small businesses become increasingly dependent on intangible assets.
ACCA believes that, in the future, truly complete finance professionals will have a greater advantage in helping businesses raise finance for four reasons:
- First, both traditional and innovative finance providers increasingly require timely information straight from operations and the supply chain, which requires accountants to act as true business partners.
- Second, accountancy practitioners are increasingly expected to provide a quasi-assurance service to fundraising businesses. While valuable to businesses and finance providers alike, such services can only be monetised as part of a comprehensive advice offering.
- Third, with a substantial amount of business financing provided or underwritten by directors, professionals need to be able to speak directly to boards and explain the long-term implication of financing decisions.
- Fourth, an increasing array of financing options risks distracting business owners with disastrous results; businesses will need authoritative advice to help them narrow their options, not merely evaluate them.
The first State of Business Finance review also considers what can be done to restore relationships between businesses and finance providers. ACCA calls for professionals to work with venture capitalists and not be afraid to challenge their herding behaviour, and for credit providers to prioritise timeliness, innovation and good conduct. Ultimately, the professional body said, financing relationships can only be mended by restoring trust, ownership and control where they belong.
Looking deeper into the people involved in raising finance, ACCA noted that women were significantly under-represented in business financing, especially where finance was being raised for clients. While ACCA’s past research had found evidence of this split, the latest review suggests the findings cannot be explained away by business characteristics and other objective factors.
Manos Schizas, Senior Economic Analyst at ACCA, said: “This is a substantial mis-allocation of human resources at the global level, and if it’s happening in the finance profession, where technical expertise tends help combat gender stereotypes, it’s probably even more widespread in the wider business world.”
