How small lenders can overcome the challenge of scalability

Posted: Tuesday, 5 April 2022 @ 09:40

Scalability is one of the biggest challenges facing even the most promising of small businesses. While plenty of organisations have good ideas that achieve a certain level of success, the inability to scale can stop many in their tracks and not only limit growth potential but sustainability as well.

Although there are lots of things that contribute to scalability, for businesses built on lending money two key things can provide serious barriers to growth potential if they cannot be scaled up: funding and software capabilities. 

So, if you’re a small or new lender entering the market,  what can you do? Borrowing to grow your lending businessFor any business, finding the right level of funding is essential for growth. For small and new lenders, this is particularly important - we know this from our own experience, having grown from a startup in the asset finance industry to an established niche funder.Under regular circumstances, when it comes to raising money, businesses have three main options:

  • Available cash
  • Additional shareholder investments  
  • Borrowing 

With borrowing there’s a careful balance to strike so that businesses are not over-leveraged. As a result, banks rarely let businesses gear anything above 10%. However, if you are an organisation which lends money from your own balance sheet, borrowing has a different level of importance when it comes to growth. 

The funding challenge for small lenders and startups 

Understanding that borrowing takes on a different significance for businesses that lend, the finance industry offers the well-established block discounting approach, which can enable their business to gear up to 500%. 

Block discounting provides businesses with a credit line giving instant access to an agreed fund, at an agreed discount to the value of their current finance receivables. It’s a compelling solution for those looking to build a finance proposition, providing an opportunity to diversify as well as grow revenue and profitability.

However, as you may have heard us mention before, typically block discounting has only been available once businesses have reached a certain size, and can justify a funding line of often £1m or more.  For many small and new lenders, those figures are simply too high. They can’t access them because they don’t yet have the level of business to warrant them, and yet they can’t grow their book to that level because they can’t access lower levels of wholesale funding either. There’s a gap where they’re getting lost.

It’s this gap for which Rivers’ incubator block discounting is providing a bridge. Launched in December 2021, it offers lines of up to £250,000, which is all but unique in the market. It’s a level of funding availability that helps small lenders to grow until they can access those higher levels.

Finding scalable technology solutions

Even with the right funding available to help lending business to grow however, having access to scalable technical capabilities to manage the business is also a barrier to growth. 

For many small lenders, the entry point for technology that facilitates the processing of broker and own-book deals for larger portfolios (the size they are perhaps aiming to become) is too high. However, many startup solutions for this type of work only allow businesses to reach a certain number of milestones, meaning they will have to shift platforms, which presents challenges in itself.  

In short, the technical solutions available to new and small lenders don’t necessarily scale according to the growth of the business. Lenders need robust back-end solutions that will sustain growth from the very beginning.

This was the challenge that the team at LTi Technology Solutions wanted to overcome with the development of ASPIRE Express. The secure SaaS solution provides the ability to book and service lease and loan contracts quickly at a low entry cost. Crucially, it scales as the business grows so there’s no need to change platforms and costs remain commensurate with the size of the business.

Scalability is one of the biggest challenges for growing businesses. Unlike many industries, for lenders those challenges are very specific and can be easily fixed, it’s simply that the solutions have not been readily or affordably available before now. That’s where the combined solution of incubator block discounting and ASPIRE Express come in, turning startups into scale ups and small lenders into sustainable ones.


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