Research has shown that proportionally the recession has been tougher on small businesses than their larger counterparts. With bank loans accounting for the majority of business lending, interest rates and accessibility are a big deal when it come to borrowing. There are alternative methods of finance available, however, which it’s worth looking in to if your business is struggling with a harsh lending environment.
SMEs are often perceived as riskier than larger businesses. This translates into higher rates for small businesses as opposed to their larger counter parts. This is a gap that is growing within the business sector, with higher rates getting higher for many small and medium businesses.
Though interest rates in general fell between 2007 and 2010, the interest rate gap between small and large businesses actually grew in the same period, according to the Organisation for Economic Cooperation and Development.
However, data has also shown that for many businesses loans simply weren’t on offer. Despite government lending initiatives aimed at increasing small business lending, targets have not been met and it seems like the banking sector is not enough to cover the gap in funding needed to boost growth in the UK economy.
Access to finance remains one of the biggest obstacles to the creation, survival and growth of small businesses. The government is hailing SMEs as being the lifeblood of the economy and key to getting it back on track. However, tighter lending conditions, growing late payment problems and unavailability of working capital all take their toll – especially when bank lending is not readily available.
Last month, the Bank of England showed that the lending available for SMEs in Q1 of 2012 was roughly the same as that available in the last three months of 2011. This shows that the new year has not shown an immediate boost to lending – highlighted especially by the fall into a double dip recession.
It’s essential to look to alternative methods with bank lending looking unpromising for many SMEs. Invoice finance, asset based finance and factoring can all offer solutions for many small businesses.