If your business is just starting to on the road to recovery, despite a growth in confidence, you may still be worried about cash flow. The UK banking sector is continuing to let small businesses down with the unavailability of funding. This is a major barrier to growth for many SMEs, according to the Federation of Small Business – alternative lenders are being championed as the way forwards for UK small businesses.
Failure of British Banking System
More than one in five small businesses experiences this widespread problem. With over 41% of business loan applications refused in February, many businesses are looking for alternative ways of financing their growth.
The problem with traditional funding is no so much the price of money, but who has access to it. Graeme Fisher, head of policy at the FSB, claims, “Our exisiting banking system is not geared up for lower-end loans of less than £25 000, there’s no money in it.”
Vince Cable, the business secretary, last week warned that recovery could be stunted by a “yawning mismatch” between demands for financing from small businesses and what the banks were prepared to offer.
In comparison to the US and Germany, the UK is lacking in the variety of small lenders prepared to give SMEs a chance. There are a multitude of small German banks that operate with far lower rates of return. The US also has a diverse banking sector which can distribute government backed loans.
Compared to a 24% fall in successful UK loan applications between 2007 and 2010, Germany experienced only a 9% decline. According to the FSB, this was due to the decision making process being more transparent and more devolved to local branch heads.
So, what can UK SMEs do?
Ahead of the government review of lending due later this week, experts are championing alternative lending methods to plug the finance gap, allowing SMEs to continue growing. The FSB is backing peer-to-peer lenders and microfinance bodies to make up the shortfall whilst a more widespread reform of bank lending is on-going.
Invoice discounting and factoring are also predicted to take a surge in popularity in 2012. Here at Select Factoring we offer both of these viable alternatives to bank funding. They can release cash tied up in unpaid invoices, and can be deployed in a flexible or comprehensive manner. By improving your cash flow, growth will again become a possibility.