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Loan Drought for SMEs Worsens

According to a new report by BDRC Continental, the loan drought from which many SMEs are suffering is becoming worse – businesses have lost confidence in lenders following a credit squeeze which has prevented them from getting loans and overdrafts. While the banks might not be keeping up with small businesses’ needs, there are many forms of alternative finance which can pick up the slack, with invoice finance being a viable option for many SMEs.

The SME Finance Monitor Report found that just 43% of small and medium businesses used external finance compared with 51% only three months earlier. The report also indicated that a third of businesses that applied for loans and a fifth of those that applied for overdrafts were in fact turned down. This shows that the lack of success many businesses have in applying for finance is impacting on their confidence in lenders themselves, with many simply choosing not to seek finance in reaction to failure – resulting in stagnating growth figures.

Business confidence in banks is clearly falling. Just 39% of SMEs interviewed said they were confident their bank would sanction a future overdraft – this is a significant fall from 52% in the first quarter of 2012. This confidence is dipping so low that many are relying on their own savings  to invest in business as external finance becomes harder to access.

Despite ongoing government incentives for banks to lend to small businesses, it’s still clear that more needs to be done – however, this is likely to be a long term issue that can’t be fixed overnight. While wider economic issues are obviously a big factor, they don’t necessarily preclude finance for small businesses. Invoice finance is still an option – it’s flexible, accessible and affordable. If your business issues invoices on a 30, 60 or 90 day basis then you could make use of this form of alternative finance. You can unlock the capital tied up in unpaid customer invoices to free up cash flow, helping you to keep investment in your business ticking over.


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