Raising funds without tangible assets
In a service-led economy like the UK, what can businesses leverage to raise capital?
Over the past few decades, the UK economy has undergone a significant transformation. Once defined by a strong manufacturing sector, the UK is now one of the world’s most service-led economies, with services accounting for approximately 80% of GDP.
For UK SMEs, this has meant a fundamental shift—from producing tangible goods such as textiles, steel and machinery, to delivering value via intellectual property, digital platforms and other business and professional services. And crucially, these services are all intangible.
While the economy has evolved, traditional lending models haven’t kept pace. Many financial institutions continue to operate with a “mortgage mindset”, requiring tangible assets such as property as security for raising finance. This might have worked for the manufacturers and producers with plenty of real estate, machines and stock to leverage, but for modern, service-led businesses, which by their nature are often asset-light, this legacy model presents a significant barrier to raising finance.
So, in a service-led economy like the UK, what can businesses leverage to enable them to raise capital? This article aims to shed some light…
The broader challenge for service-led businesses
While the lack of tangible assets is a fundamental challenge for service-led businesses trying to raise finance, business leaders should also be aware of the broader landscape within which they are fundraising.
Following a particularly turbulent period for global macro-economic trends, it is little wonder that lenders are approaching their borrowers more cautiously.
This means that the difficulty in leveraging intangible assets is compounded by:
- Cautious credit environments: In times of market uncertainty, lenders become even more reliant on traditional forms of security and preferential of conventional business models they fully understand and are comfortable with. In more traditional institutions there is often a lack of experience at lending to high-tech, high-growth businesses, which means lenders do not have the depth of understanding to get comfortable with underwriting these types of deals.
- Overinflated tech valuations: The post-Covid correction in tech valuations, particularly in the US, has created a ripple effect that makes it harder to put a reliable value on IP or software. This in turn makes it more difficult for lenders to evaluate risk, even where revenue growth and innovation are strong.
- Lack of internal financial literacy: Innovative SMEs that have grown quickly may not have had the resource to employ experienced finance professionals that can easily articulate the value of their intangibles. As a result, they lack the in-house expertise needed to present a compelling case for investors that offers confidence the business could withstand a downside, or that there would at least be value to extract in a worst case scenario.
Proving value to investors
For businesses that lack tangible assets, it becomes even more crucial that they can demonstrate to investors exactly where the value sits within their business.
While no two businesses are the same, common intangible assets include:
- Revenue visibility: Predictable, recurring, or highly contracted revenue streams carry significant weight. SaaS models with long-term contracts, high customer retention, or subscription billing models are particularly appealing because they give the investor clear visibility as to how and where revenue will be generated, and – in instances where a business is raising debt – how the loan will be repaid.
- Market defensibility: Lenders look for businesses with a clearly defined USP, strong brand equity and limited exposure to competitive disruption. The more defensible your market position, the more comfort lenders can take in future cash flow predictions.
- Intellectual property: Proprietary software, patented technology, or other protected innovations can be valuable—but only if they are well documented, clearly commercialised, and transferable.
- Strength of management and relationships: Strong leadership, deep industry expertise and long-term customer relationships all reduce a business’ risk profile by giving the lender assurance that the team has the necessary experience to navigate the challenges that come with growing a business.
Ultimately, lenders want confidence – not just in today’s numbers, but in the business’ long term performance.
The importance of specialist lenders
This is where specialist lenders like Growth Lending come into play. Our experience at supporting fast-growth, tech-enabled businesses means we have a deeper understanding of the growth trajectory of these firms and the value that lies in intangible assets such as IP, recurring revenue and genuine USPs.
Our in-house teams include professionals who understand not just how to assess a service-led business, but also how to support it through growth, transformation, or even periods of stress. That understanding enables us to lend more confidently where traditional lenders struggle to get comfortable.
While working with a specialist lender doesn’t negate the need to be well prepared and to be able to clearly demonstrate the value in your business yourself, it does make it far more likely they will understand and ultimately, get onboard with your vision.
What next?
As the UK economy continues to be shaped by innovation, digitalisation, and service-led businesses, it’s essential that the lending ecosystem evolves to support it. The old asset-heavy models of underwriting are increasingly out of step with the businesses powering our economy.
For SMEs and their advisors, the question isn’t what do you own? It’s what have you built? And how well can you prove its value? At Growth Lending, we’re committed to asking the right questions and finding flexible, forward-looking solutions for businesses that may be overlooked by the traditional credit playbook.
