Investment or invoice finance as a business funding solution?

Now some time has passed since the credit crunch, the availability of commercial finance has now moved on from the political elephant in the room, and been duly promoted to the ‘hot potato’ that no one really wants to take head on.

In the wake of the bank bailouts, with Lloyds and NatWest majority owned by the taxpayer, assurances were given by government that they would get tough on the banks and that lending levels would be increased. We then had the banks saying that UK plc didn’t want finance and that small businesses didn’t need funding which was as truthful as Pinocchio in a nose growing competition. Yet the government failed to act.

Now with a new government, and one who is cutting some £81bn from the public sector, has gone out on a limb and justified the cuts on the argument that UK plc will shoulder the burden through growth. Yet the current government, like the last, has failed to act in terms of taking on the banks and despite factoring in some token gestures, consensus on support for businesses by government hasn’t changed.

Call to action from the Institute of Directors

With this in mind, it is hard to see that a call to action from the Institute of Directors will turn the tide but nevertheless Miles Templeman, the director general of the Institute of Directors (IoD) has called for government to act. He has however taken a different stance and rather than continue the popular (but fruitless) bank bashing, in speaking to business magazine Insider, has he instead called for government to help businesses seek investment.

The director general, Miles Templeman, was quoted as saying: “If the government wants UK businesses to compete on the world stage, it needs to give more assistance to businesses in need of funding.”

Speaking on the difficulties facing all businesses, and tackling the funding issue from the investment perspective rather then lending, he added “I don’t think politicians really understand how difficult it is to run a business and make it a success. Businesses need investment to grow. Many businesses struggle with the availability of finance.”

In speaking with the business magazine, the director general also said he expected the next year to be a challenging and difficult one for businesses.

“We’ll probably see a very small growth in GDP next quarter, but I think this year will be one of soldiering through then building on the progress we’ve made.”

Funding essential for any business

Funding is an essential requirement for any business, be it through investment, profits or borrowing and whilst investment may help businesses get off the ground or bring new ventures to life, if businesses are just in need short term funding for cash flow management to avoid late payment problems, or perhaps to expand and bring in new staff, open a new outlet, or purchase new equipment, they may be very reluctant to hand over a permanent stake in the business as a solution to a short term need?

Whilst the banks in general have become more protectionist of their capital and in doing so have reduced lending lines and raised the bar and costs of borrowing, effectively pricing many small business out of the credit market, the UK is a world powerhouse for asset based lending such as invoice factoring and invoice discounting products, amongst others.

Many businesses will be in need of investment and it is right for the IoD to champion that cause, but it doesn’t tackle the biggest killer to businesses, even profitable ones, in respect of cash flow, or rather lack of.

Poor cash flow is still the biggest killer of UKplc and whilst government is still not doing enough to tackle the issue from either side, the explosive growth in the asset based lending sector seems to suggest that more and more businesses are wising up to the fact that traditional bank borrowing is no longer as viable a proposition than before the bank bailouts.

For more info on invoice finance or a quote on the best deals from numerous small business finance providers, pick up the phone or use our ‘Am I eligible’ tool via the site for further details.

Factoring Finance has a UK wide, independent broker network able to source the best deal for you and as such, we are not tied to any one provider, or bank!

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