“We don’t want to be bankers. We want to sell our product and develop our product, but it looks like this is how we’re going to have to do it.” So says Tamlyn Thomson, who has just started a captive finance operation for his business, Idscan Biometrics, and is not particularly happy about it.

Thomson’s is one of the slowly growing number of businesses to receive funding under the Enterprise Finance Guarantee scheme (EFG), which was launched this year in an effort to support SMEs through government-guaranteed loans.

EFG’s patron, the Department for Business Enterprise & Regulatory Reform (BERR), claims that £186 million of a potential 1.3 billion has now been distributed through the scheme to some 2,059 businesses, via 26 lenders (of which 21 have lent money so far). But how much genuine support is it offering?

By virtue of a 90 page business plan submitted to its bank, Lloyds TSB, Idscan was able to secure £175,000 through the EFG scheme, which it has used to provide asset finance for clients, through deals worth an average of £6,000 over a three year contract.

Although the money has been crucial to getting Idscan’s sales moving through the setup of an internal sales-aid programme, it has come at the cost of a major change in strategy. The extent of this becomes clear when I ask Thomson what advantages Idscan has gained through the new in-house asset finance offering.

“We can carry on doing business. That’s the only advantage.” He says sharply, before clarifying his position. “Just to make it clear, none of our customers have been able to get asset finance externally for almost nine months. It’s been impossible, and the situation has created a blockage in our cashflow.”

“We are in effect doing the job of the asset financers. In the long run it benefits us to the extent that we take the margin the asset finance house would normally take, but in the short run it doesn’t, because it works completely against our business model.”

For some companies, such as franking machine supplier Nationwide Franking Sense (NFS), the buildup of an internal finance provision facility dovetails with an existing strategy – NFS had previously run a small book off its own revenue. But in this case, the transition has not been so smooth.

Thomson explains that much of Idscan’s liquidity has historically been fed into research and development for new products, a situation aided by the upfront payments of clients using externally sourced asset finance. Now, he says, plans for product design, new programmers and increased European distribution have been mothballed while the firm’s capital is being plowed into sales aid.

Apart from these capital issues, the move to internal finance provision has changed Idscan’s sales model profoundly, and necessitated the uptake of a raft of new processes and priorities for the formerly R&D-aligned company.

Considering the sustained sales growth that Idscan saw for seven consecutive months prior to the bank’s clampdown on lending, it would seem that its business would be much better served if the EFG were applied directly to its customers.

After all, with its client base in the poorly-perceived leisure sector, the chances of external finance coming in from a balance sheet lender seem as slim as ever.

Contributed by: Fred Crawley, Reporter – Leasing Life & Motor Finance