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Banks vs. Alternative Lending

Banks are facing new regulations and more obstacles to providing funding for small businesses. While the government might be looking to the banks to allow for growth, there’s equal pressure for them to minimise their risks and balance their books. Businesses are starting to look further afield, to factoring and invoice finance lenders, in order to fund their growth and recruitment plans for 2012.

Bank Lending

British banks are facing new regulations, from tougher capital liquidity requirements to proposals to make banks ringfence their retail and small business operations. Risk aversion amongst investors has also caused the price of wholesale lending to rise.

Jon Pain, head of financial services risk consulting at KPMG, said: “As additional capital requirements on banks are piled on banks – at a time where the outlook for economic growth is fragile – we are seeing that much of the banks’ renewed capital strength coming from shrinking their balance sheets.”

These factors look to be increasing costs for customers and small businesses. SMEs could be particularly impacted, especially those without lending histories such as new start ups. They are deemed riskier, and as such might find it difficult to find funding.

If funding for new businesses is restricted, then growth in the UK economy could be strangled. Funding is essential for businesses who are looking to build themselves back up or reinvigorate growth and recruitment plans.

Alternative Finance

With banks looking to minimise their risk, many more businesses are looking for alternative paths to lending.

Factoring and invoice finance are two ways that businesses can free up cash flow and combat late payment problems. These are two obstacles that will work against businesses who are looking to growth in 2012.

Invoice finance can release funds from unpaid invoices, giving businesses access to up to 90% of the invoice value immediately. There’s no need to wait for 30, 60 or 90 days for invoices to be paid. With instant access to substantial funding, and minimal paperwork, invoice finance and factoring can help kick start business growth this year.

Select Factoring have a number of solutions for businesses looking to bypass the bank lending labyrinth in 2012.



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