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Small Business Loans: Inaccessible and Unaffordable

The lending market for small businesses is not looking healthy, with small business loans looking to fall for yet another year in a row. With many small businesses struggling with their finances, and the now official double dip recession, this all paints a bleak picture for SMEs in the upcoming year. Invoice finance options are becoming all the more important for small businesses to fund growth and innovation.

Poor Growth Prospects

Ernst and Young has said that business lending will not return to pre-recession levels until 2016, with small and medium businesses being most affected by this lack of  lending. There were also predictions of the business loan write-off rate increasing to nearly 2% of loans in 2012, as more businesses struggle with the increasingly steep repayment terms that lenders are imposing.

The underwhelming growth prospects for businesses means that business lending could fall 6.8% this year, following on from a 6.1% shrink last year. Government schemes looking to inject investment into the business sector do not look like they will be able to go far enough or fast enough to remedy the fall in bank lending. 

Overall, the continuing weakness of the economy is impacting both on the availability of lending and the ability of businesses to pay back loans. Which the 2% rate of loan write off’s does not sound huge in absolute terms, this is the highest rate of write off’s since the mid-nineties. This creates a vicious cycle, as the more moeny banks have to write off, the less money they have to issue new loans.

Alternative Options 

Alternative finance options are therefore looking to be important for the coming year. Bank loans can be expensive, unreliable and difficult to repay, that is if your business is lucky enough to secure one. Government schemes are a step in the right direction, but often do not do enough on a wide scale to help many small businesses that need it.

Invoice discounting and factoring, however, are two forms of invoice finance that can help a whole host of businesses with their funding and cash flow problems. Any business which issues B2B invoices can look to these forms of funding, which can release funds quickly, affordably, and securely.


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