CCR Magazine

Conventional bank loans, often seen as the traditional option for raising business finance, are being ignored by small and medium-sized businesses due to worries about restrictive eligibility criteria and the wide range of other finance options available, says Bibby Financial Services.

Although statistics from the CBI show that bank lending to businesses increased in November 2009 for the first time since January 2009, lack of access to finance over the course of last year saw many businesses turn to other options.

Research Bibby Financial Services carried out into the financial intermediaries sector in 2009 found that the question of raising finance is a key concern for four in 10 small and medium-sized businesses but, more alarmingly, three-quarters (74.3 per cent) had found that stricter bank lending criteria had made it harder for them to get funding.

The small business community have become increasingly aware of factoring and invoice discounting as a method of raising finance. The Asset Based Finance Association (ABFA) recently published statistics showing total funding advanced to businesses in the UK in Q3 of 2009 rose to £48,667 million, an increase of four per cent on Q2 2009 figures. 

In light of the growth of the invoice finance industry, Bibby Financial Services’ UK chief executive Edward Rimmer explains five key benefits for businesses considering invoice finance as an alternative to conventional bank loans:

- Factoring and invoice discounting facilities are more responsive and are more flexible than bank loans and overdrafts
- Cash can be accessed as soon as you invoice a customer – making financial planning more predictable
- Factoring and invoice discounting facilities reduce the time and resource spent on credit management and collections for businesses
- Factoring and invoice discounting improves cash flow, resulting in better supplier terms and more funds available for business growth activities
- Many providers offer bad debt protection, mitigating the impact of bad debt caused by the inability of a customer to pay.

Edward Rimmer said: “The lack of available finance through 2009 caused issues for many businesses, and for many, factoring and invoice discounting was a saviour. The fact that interest rates are low has had little effect on the attractiveness of bank loans. Indeed, recent statistics show that one third of company owners who have borrowed over the past year have been charged more to do so, with the majority experiencing an increase of at least one percentage point.

“What we have seen recently is that, although bank loans are slowly becoming more accessible, the ease with which firms can employ the services of an invoice finance provider means that many are looking for more flexible providers and turning away from the restrictive criteria many banks still impose.”

(Source - Bibby Press Release)