Will the 'credit crunch' create funding problems for small businesses?

With the UK’s banking community left shaken in the wake of the credit crunch, independent invoice financer Bibby Financial Services is advising UK small and medium-sized businesses to review their funding arrangements as a matter of urgency as banks employ higher rates and tighter lending criteria.

“Many high street banks already neglect to understand the challenges faced by SMEs when it comes to applications for funding, and despite the U-turn by the Bank of England to pump money in to the economy, many banks are still imposing even stricter lending criteria that owners and managers simply can’t meet, said David Robertson, chief executive, Bibby Financial Services."

“For example, a start-up business is unlikely to have the valuable assets or two to three years of credit history that banks are set to employ as part of more stringent health checks however watertight their financial planning and forecasting. And while larger companies are predicted to be those most affected, many SMEs provide valuable products and services to much bigger organisations and would face an equal risk of a cash flow crisis if one of their client’s were to enter financial difficulties.”

“The good news is that banks are not the only option for SMEs who are looking for means to boost their financial stability, many now opt to work with providers of alternative more flexible funding, such as invoice finance.”

Invoice financiers typically take a much more in-depth view of a client’s business and take in to account the entire financial make up when making a funding decision. In addition, extensive credit history is not required, with the sales ledger of the business used to secure its access to funds.

As sales invoices are raised, the invoice financier advances up to 85% of the value, providing an immediate injection of cash in to the business, with the remainder, less a small service fee, going to the business once payment of the invoice is secured. Many invoice financiers will also handle the chasing of outstanding invoice payments on their client’s behalf to avoid time-poor owners and managers devoting precious time to chasing debtors. Bad debt protection is also a feature of many invoice finance packages, to ensure that the client gets paid even in the event of one of its customers failing.

“Despite the current economic uncertainty, there is still light at the end of the tunnel for owners and managers and those thinking about starting their own business. With careful financial planning and a comprehensive review of all the funding options available, there is every opportunity to become the next success story and benefit from the UK’s burgeoning entrepreneurial culture,” added Robertson

You can read more about invoice financing - see our guides to invoice discounting and factoring here.