How modern Factoring Houses use Securitisation to grow their business

Factoring Houses have a critical role to play in supporting businesses. With limited resources at their disposal, small and medium-sized enterprises (SMEs) can struggle to access the financing they need to fund growth and meet their working capital needs. And in today’s environment, these challenges are even more pressing: higher interest rates, new regulatory requirements and fewer financing options are all making it harder for SMEs to finance their businesses.

Earlier this year, a survey by the British Chambers of Commerce Insights Unit highlighted the challenges faced by SMEs in accessing the funding they need. According to the survey, almost half (49%) of the businesses which had accessed finance felt that getting funding had become more challenging in the last three years.

In the US, meanwhile, research by Goldman Sachs found that 70% of small business owners who had applied for a new business loan in the last year found it difficult to access capital. And in March 2024, Reuters reported on the difficulties that small business owners face in getting financing from traditional lenders following the collapse of Silicon Valley Bank and others.

Supporting UK SMEs

For SMEs struggling to access traditional financing, Factoring Houses can offer a lifeline. Under a factoring arrangement, fast-growing companies which may not be adequately served by traditional bank lending can sell their customers’ invoices, allowing them to speed up cash flow, unlock working capital and fund future growth. To provide this financing, Factoring Houses need to ensure they have their own continuous flow of liquidity, which can grow with demand – this is where Demica supports.

Take innovative trade finance company Jardine Norton, which is headquartered in Cardiff, Wales. The firm serves UK SMEs in sectors such as manufacturing, energy and transport by financing their invoices to large corporate customers. With increasing demand from SMEs looking to fund growth and improve their financial stability, Jardine Norton needed to increase its existing financing facility.

By entering into a strategic partnership with Demica, the firm was able to secure an expanded £100m facility with a globally recognised asset manager. As a result, Jardine Norton is now well positioned to scale up its operations, double the size of its financed portfolio, and give more SMEs access to the working capital funding they need to thrive.

Bespoke funding solution

Another success story is that of fast-growing global B2B payments company TreviPay, which is headquartered in Kansas, US, and facilitates $6 billion in transactions per year. Following its acquisition by private equity firm Corsair in 2020, the fintech put in place a $175 million on-balance sheet asset-backed loan (ABL). However, the arrangement turned out to be overly restrictive, with challenging reporting mechanisms for participating funders.

TreviPay discussed its requirements with Demica and decided to replace the ABL arrangement with a different type of solution. Working with TreviPay’s finance team, Demica analysed the company’s receivables portfolio, sourced potential funders and helped the company structure its new facility. The result: a bespoke $215m funding solution which includes off-balance sheet securitisation and invoice discounting, and which is managed using Demica’s platform.

As a result, TreviPay has been able to provide more liquidity to its customers while replacing a restrictive administrative overhead with a streamlined process. What’s more, the facility is flexible enough to grow as TreviPay’s business expands. As CEO Joel Campbell explains: “The Demica solution provides us with substantially more liquidity and less administration. It also allows us to upsize and, as the business grows, to provide even more liquidity to new programmes, new buyers, and new customers.”

Financing the supply chain

To summarise, funding conditions remain challenging in the current market, particularly for SMEs with limited resources which may struggle to access traditional bank lending. In order to meet this demand, factors need solutions that are flexible enough to scale up when needed. As such, Demica’s offerings benefit not only factoring houses and fintechs, but also the SMEs they serve – meaning that we have a crucial role to play in financing supply chains and fostering growth.