When the bank says No, Invoice Finance can say Yes

It is well documented that the UK banking system is not currently in favour with small businesses, especially those looking to inject capital into the business, to fund growth, or facilitate better cash flow.

Most people will remember the adverts for “The bank that likes to say Yes”, but that phrase has somewhat disappeared. It is doubtful that a new ad campaign will surface stating “we are now the bank that would like to say yes, but the computer says no” or “the bank that likes to say yes, so long as you put up your home as excessive security and pay over the odds in terms of interest”. No matter how much truth the above statements have, they just don’t have the ring to them.

On a serious note, and there is nothing as serious to a small business owner as losing your business and your home as a result, the banks have obviously become more protectionist and their own interests at the moment (in propping up the balance sheets) are not in sync with small businesses looking to raise finance. We keep on hearing from the banks about UK small business not having an appetite to borrow, but its all relative in so much as businesses may have an appetite to borrow, but not on the terms that the banks are offering.

Priced out of the market

Many small business owners, whom lets not forget, collectively have a £24bn mountain of late payments owed to them, are simply being priced out of the traditional bank loan and bank overdraft markets. It is not uncommon for the banks to ask for security well in excess of the amount being borrowed, which previously would have either been unsecured in any case, or secured only on a business asset. Now for something as small as an overdraft for one month’s business turnover, small business owners are being asked to put up personal guarantees and a charge over the family home. All the while being charged an interest rate in the high teens or even the twenty’s, which is some 20-40 times the Bank of England base rate.

Who would have an appetite for that type of borrowing?

Working capital remains one of the most crucial elements to business survival and whilst there are some businesses that are simply not viable for any form of business finance, there are tens of thousands who have a viable, profitable and growing business, in need of working capital funding to facilitate that growth.

It stands to reason that if you offer some of your customers, 30, 60 or even 90 day invoice terms that the money spent in fulfilling that sale is effectively taken out of the business for the duration. In a growing business, or perhaps seasonal businesses with short windows of high sales volume, the lag between cost of sales and being paid can be at best, detrimental to exploiting maximum sales, growth and profit, but at worst, place a strain on the working capital and plunge the otherwise viable business into negative cash flow.

When the banks say No

Increasingly the banks are shying away from traditional borrowing, even for viable businesses unless excess security is offered. As such, when the banks say no, one type of funder has been saying yes, and with increasing popularity.

Invoice Finance products such as Invoice Discounting or Factoring, which are sometimes known as ABL or Asset based Lending products are where the business needing finance, offers up an asset, in this case an outstanding customer invoice, as security and receives an advance from the funder against that invoice.

The advance is typically 75-90% of the invoice value and given typically 24-48 hours after the business submits the invoice to the funder. The typical charges against the funds advanced are somewhere between Base rate + 1.5% to 3.5% but these will vary between funders, and the individual business requiring the invoice finance. However, Factoring Finance are independent brokers so we can find the best deal for your business and not just in terms of fees, but with industry specialists best suited to your business if so required.

Small Business Finance Outlook

Since the credit crunch the banks have been pulling out of unsecured business borrowing, easy credit is gone and this is only set to continue and escalate as the banks prop up their balance sheets.

ABL used to have an association with companies in trouble among many business owners, but in fact, it’s often the best form of finance for a growing business. Given the reduced security requirements, it is far more likely to be available and offered to a small business and is flexible in so many ways that now even the banks are actively pushing their customers towards this type of facility, and some have also entered the market for themselves.

For more info on invoice discounting and invoice factoring 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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