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Falling Bank Lending Rates

Figures from the Bank of England have shown that the slump in small business lending looks less than encouraging. In the light of the official double dip recession, this trend is not one that will make life any easier for the UK’s small businesses. With lending by banks and building societies falling, it’s essential to look at alternative finance options such as invoice finance. These can give small businesses another option, outside those traditional routes to bank finance.

In February this year, bank lending to British businesses fell at the fastest rate in almost two years. In the light of the double dip, this only underlines the fragility of the economy in its current state. Lending fell by £4bn, the biggest decrease since March 2010, when it fell by £4.1bn. Over the three months leading to February, lending fell by £9bn.

This leaves annual lending rates for small businesses falling at a rate of 3% per year. Despite government initiatives, this shows that the bank sector is looking to minimise risk and is therefore less willing to take on debt from small businesses – which are often perceived as risky investments.

SMEs are therefore struggling to gain access to the funds they need for growth and recovery, as well as those finance measures needed to combat cash flow problems. Big businesses, on the other hand, are more unwilling to invest due to the uncertainty caused by the recession, Eurozone problems and general weak economic outlook.

So, how can small businesses combat these lending problems?

Invoice finance and asset based financing are options that can help with day to day running, as well as freeing up cash flow that can be used to fund growth plans. While expanding business during a technical recession might seem counter intuitive, those businesses that manage to fund innovations, exports and growth will gain competitive advantage once the UK begins to recover more strongly.

Factoring and invoice discounting can both free up capital from unpaid invoices, which many small businesses are being dragged down by. If your business has a full order book but is struggling to find cash flow, then invoice finance could be an option that’s more accessible than traditional bank funding.

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