According to the Bank of England, more and more small businesses are being forced to look for ‘angel investors’ in order to fund their growth plans, as well as their day to day running. This is due to the lack of traditional funding available from banks, limiting small business funding options.
Failure of Traditional Funding
Loans from rich investors and peer-to-peer lending is becoming more prevalent as a means for small business funding. Banks are accused of being unwilling to lend to small companies, who are perceived as more risky and less profitable than big businesses.
This has caused a crisis in small business lending, leading to a short fall in funding which will limit growth and recovery. Credit easing measures recently announced by the government are only a partial solution, as they are notoriously inaccessible for many businesses struggling to find finance.
Minimum loans values of £25,000 within the National Loan Guarantee Scheme mean the smallest businesses are unable to take advantage of the 1% lower interest rates that the initiative offers. The high administration costs relative to small loans puts many banks off, meaning the smallest businesses are forced to look elsewhere for financing.
Your business might not want to rely on ‘angel investors’ and peer-to-peer lending networks. These networks often operate at higher interest rates, and are not regulated to the extent of traditional loans. This means they can be more risky.
Some other business funding options include factoring and invoice financing. These are ways to soften an acute cash flow problem, by releasing funds tied up in unpaid invoices. Factoring and invoice discounting can be deployed flexibly and when needed, and can provide your business with the funds needed to reinvigorate growth plans and finance expansion.
Many small businesses are caught up in a supply chain, reliant on bigger businesses paying for their services – and can be kept waiting for a long time. Factoring and invoice discounting are reliable ways to release cash flow, meaning your business doesn’t need to rely on the banks or a funding miracle.