Following a seismic change in the lending market over the past decade, banks have become far more cautious about offering external finance to SMEs, leaving a gap in funding for UK businesses. Prior to the recession, the majority of business lending was acquired through high street banks, but their aversion to the potential risk and expense of funding small businesses made it increasingly difficult.
According to a study by Santander, half of the UK’s high-growth SMEs have had their plans for growth hindered by a lack of access to suitable funding. Two-fifths of the surveyed businesses were forced to pass up on opportunities such as expanding overseas, acquiring other businesses or developing new products because there simply wasn’t enough funding. Crucially, one third had been turned down for a business loan or funding, with 12 per cent of businesses being turned down more than three times.
It’s due to the struggle to secure traditional bank loans that an increasing number of SMEs are instead looking to alternative finance providers that can offer them what they need quickly and on flexible terms that work for them. The SME sector is booming, accounting for 5.7 million businesses in the UK – over 99 per cent of all businesses in the country. In order to reach their full potential, SMEs need to be able to access the support and finance that they need to grow.
In the simplest terms, alternative finance is any financial service outside of traditional banking and businesses are now spoilt for choice with the array of funding options that are available to them.
Driving profitability through finance
If you don’t have the capital to buy a new vehicle outright, finance could be the way to go. The most efficient and popular option is contract hire, which usually involves paying a low initial rental and then monthly
Getting the goods you need to grow
Asset finance is one of the most readily available and flexible forms of finance, offering solutions for all industries. Instead of buying equipment for your business outright, you enter into a hiring agreement with a leasing company whereby you pay an agreed monthly sum for a set period of time. It’s a more secure way of finance, as the collateral is in the asset being purchased, making it easier for you to budget effectively and keep cash free to invest in other areas of the business. Whether you’re a start-up or an established business, asset finance will allow you to exploit opportunities by being able to access the assets necessary to set up and grow your business without needing the cash upfront.
It’s a great solution for SMEs who are constantly faced with rising equipment costs, as the purchases will be spread into manageable payments. It can help keep your business competitive by allowing you to invest in the latest kit, eradicating the potential for reduced productivity due to out-dated equipment.
Go with the (cash)flow
Invoice finance used to have a reputation as being only used by businesses that were going through a financial
Invoice factoring allows businesses to submit their invoices to the factoring company, which will advance a pre-agreed percentage of the invoiced amount and then chase up the payment of the original invoice. Once it has been paid, the difference is passed on to the business and the loan is completed. One of the benefits of factoring is that you’ll always be certain of when you’ll be paid for an invoice and exactly how much you will receive, allowing you to accurately plan your
Invoice discounting is similar, but tends to be used by larger businesses that rely on capital funds – as they tend to have higher sales, they can receive cash injections at a lower rate of interest. Although there is a service fee attached to invoice finance, interest is only charged on unfulfilled advances, so the debt is repaid as soon as the customer pays their bill.
Keep it simple
Sometimes it’s not a vehicle or an asset that you need to grow, but more manpower, more marketing or more space, for example. In those instances, a traditional business loan could be the way to go. While the banks may have cooled down on lending, alternative providers are more able to give reliable and ambitious businesses the injection of cash they need to achieve their objectives. If you have a strong case, there’s no reason why you couldn’t approach a provider to assess your eligibility. They’ll thoroughly assess your suitability and, all being well, could truly help your business thrive.
The picture for non-bank lending is a world away from what it was a decade ago, but there’s still a way to go before every business owner understands their options, has access to finance of varying types and terms, and uses finance effectively to further their business prospects. It’s all about speaking to reputable providers and taking your time to choose the finance solution that’s right for you.
While around 30 per cent of SMEs will probably never touch finance of any type, there’s still an enormous number of small businesses who are willing to take the leap, invest in their future and reap the rewards. The alternative lending industry is healthy and will
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