Today, we chat with Nicholas McDouall, Internal Business Development Manager at Credit4 about what the lender has been up to over this past year.

How has Credit4 been helping SMEs over the past year

We have tried to keep an open mind and have remained sector-agnostic regarding the industries of prospective clients where possible. This has been challenging in the face of constantly evolving government guidelines, particularly for businesses in the leisure, travel, and hospitality sectors. We have always taken the time to understand the requirements of the client, identifying their requirement for funding and getting a real grip on the cash cycle to identify affordability. 

As a storybook lender, we understand that all businesses are different and have therefore contacted our entire existing portfolio and offered payment plans where appropriate. It’s very easy to lend money but acting responsibly and with integrity is so important in times such as these. As a result, our clients have been able to rest assured that we would not put undue pressure on “debt collection” but would instead work with them through difficult periods by tailoring individual repayment plans to match their cash cycle.

As a result, our loan book has performed well beyond initial expectations.

Has Credit4 made any changes to its lending to accommodate the difficulties faced by
SMEs?

We have always emphasized the need to demonstrate both the purpose of funding and ultimately how the business will be able to repay the funding. This has not changed during Covid-19.

Whilst pure survival has been a high priority for most businesses, we have continued to identify businesses whereby the rationale for funding is linked to a “growth event.” While this has been difficult to demonstrate in some cases, we have been amazed at how business owners have adapted their businesses to take advantage of new opportunities.

Credit4 has always been there to support businesses that are, for whatever reason, unable to borrow from traditional lenders and thus we have always taken a flexible approach to our underwriting. Where necessary, we have structured new transactions (in a bespoke manner) to tailor the repayments in line with the client’s expected revenue stream. If this meant interest only for a period of time, we would do our best to accommodate this. Being flexible in times such as these is what we believe keeps clients returning to us!

What makes Credit4 unique as a lender?

Credit4 is unique in many ways. Firstly, we charge all of our clients the same cost of credit and indeed publish these rates on our website for all to see. We do not believe in “from x%” or indeed risk-based pricing. If the client meets our criteria, they pay the same rate that all our clients pay. Transparency from the very start is crucial to building up a true relationship with any client.

We do not believe in algorithms but instead adopt a “human-based” underwrite. We will take the time to understand the business, and their requirements and will make an informed decision on our ability to lend. We believe this methodology will become more prevalent in the coming months as algorithms cannot pick up trends during what has been a torrid time for most business owners. We identify as more Fin than Tech. 

We do not believe in charging clients Early Repayment Charges (ERCs). We believe that clients should be able to repay without penalty at any time. In fact, we actively encourage it!

Transparency is really at the heart of what we do – we don’t charge default fees, late payment fees, collection fees, etc. Instead, we listen to our clients and build up a plan of action together.

Working together is key for building a long-term relationship – our client retention rate is around 80%.

Our products have been designed with flexibility in mind. Our Dual Growth Funding product
(hybrid loan and overdraft) is a first in alternative finance and we believe is the best of all worlds with fixed repayments (loan side) with interest-only (overdraft) on the other. All with the ability to repay early without penalty at any time.

Finally, relationship management is at the heart of absolutely everything we do. From the initial interaction right through until the loan has been repaid, we are there every step of the way. Most business owners no longer have a Relationship Manager so we have tried to replace this void where we can!

Do you have any advice for SMEs who are hesitant to take out funding?

SME owners need to think very carefully when taking out funding. They need to first establish what specifically they are trying to accomplish by borrowing and secondly work out whether they think the business can afford the repayments of the borrowing.

The business owner also needs to be able to understand the benefits of borrowing – what will the money do for the business? As an example, if it’s a case of a simple stock requirement – the business owner needs to make an informed decision based on: the cash cycle, the margins, and their ability to sell said items. This should ideally be mapped out in a cash flow forecast.

Aside from this, they need to make additional considerations i.e. will they be penalized for settling early? Can they redraw should they need to? Are there any other fees associated with this funding? The guidance for this should be provided by a commercial finance broker.

The business owner should also be prepared to take independent legal advice before signing. Personal Guarantees – it’s imperative that the client can make an informed decision before signing any loan documentation. Speed in this sector is important (for obvious reasons) but can be a costly mistake if the client doesn’t take the time to understand what they are signing!

What can we expect to see from Credit4 now that CBILS has come to a close?

We will continue to help businesses in the post-COVID & CBILS world in the same way that we do now; with products that are transparently priced and with a human-led underwriting style, appraising each new client on a case-by-case basis. New products are also on the horizon – watch this space!

To find out more about Credit4 check out their website here.

Find the full list of nominees at the SME Funding Awards webpage here.

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