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The changing face of finance

Brokers / 4th June

In what has been an extraordinary moment in history, the Covid-19 pandemic has wreaked havoc from both a social and economic perspective. As the vaccine roll out continues at speed and vital protection is provided for the population, recovery on all levels is now visible. The economy has opportunity to bounce back, but what should be considered? We hear from Premium Credit’s Strategy & Brand Director.

Cash flow squeezed

As financial recovery begins businesses of all sizes need to take a deep dive and scrutinise their current financial situation. Some firms have ridden the Covid storm better than others. Premium Credit’s latest Insurance Index shows SME cash balances are being squeezed significantly – around one in three firms (33%) say cash reserves have fallen during the COVID-19 crisis, while 7% say their firm has no cash reserves. Just 13% say they have seen a rise in cash reserves. Cash flow will need to be considered more than ever in the months ahead.

Government support will be tapered

Recent figures show businesses across the UK benefitted from 1,630,155 government-guaranteed loans worth £75.1bn to support their cash flow during the crisis through schemes delivered by the British Business Bank, the government’s economic development bank . This support has without doubt saved thousands of businesses, but this level of support can’t continue.

As normality returns businesses will be expected to stand on their own two feet. So as support is tapered, what other options are open to businesses needing to improve cash flow in what remains a hugely challenging moment in time.

Credit – a strong option to help improve cash flow

Effective use of credit is one answer to help improve cash flow. SMEs are increasingly using various forms of finance to meet everyday expenditure whilst preserving their capital. In past decades ‘finance’ has been considered a dirty word in certain quarters but thanks to increased regulation; industry innovation; better financial education and improved selling standards, this has changed dramatically.

Today, finance is seen as a widely accepted, valued tool in a business’ armoury. Paying for insurance cover is one ‘everyday’ example where finance is being increasingly used to spread the cost and contribute to improved cash flow for SMEs. According to findings from Premium Credit’s latest Insurance Index one in four firms are borrowing more to pay for insurance premiums. Most of the additional borrowing is going on credit cards with 60% of SME bosses putting it on plastic, while 40% are taking finance from insurers and/or are using premium finance. Some 24% are turning to personal or business loans.

The downside to these statistics is the unnecessary reliance that SMEs are placing on credit cards to help spread the cost of premiums and the high, associated costs of borrowing in this way. In response, Premium Credit is advising SMEs and the brokers supporting them, to consider premium finance, which for a small charge, enables them to spread the cost of insurance more effectively.

Premium finance - benefits for customers and brokers

Premium finance provides a wide set of benefits not only to the customer, but to the broker too.

Here are a number of reasons why business customers and consumers are choosing to pay for their insurance using premium finance:

  • Improved cash flow: eliminates the requirement for a large up-front payment, freeing up the lump sum to use elsewhere and avoids the need to liquidate other assets
  • Complete cover: ensuring the upfront cost doesn’t lead to cutting corners on insurance cover
  • Flexibility: multiple insurance policies can be attached to a single premium finance agreement allowing for a single payment plan and single direct debit
  • Retained Capital / Off Balance Sheet Lending: by using the premium finance lender's capital, customers can retain and re-invest capital in their business through an off-balance sheet item

Brokers also gain from the third-party relationship with a premium finance provider like us. As well as increasing payment options and customer choice, intermediaries receive a percentage commission for every new credit agreement they set up for their customers choosing to pay in this way.

The coming months are going to be a challenging time for businesses. Effective use of premium finance can play an important role in helping firms bounce back.

Changing face of finance