Almost on a daily basis, I speak to SMEs which complain that they are still being side-lined by some banks, leaving them short on funds at key times.
A business’s life can be divided up into a series of key landmarks in the early years – start-up, investment and growth, taking on new staff, moving into premises (if initially home-based) or moving up to larger offices. Traditionally, high street banks have helped fund this development.
During the depths of the recession, that source of finance had to a large extent dried up, which sadly resulted in many, many businesses going to the wall.
There are other initiatives out there that have helped businesses access finance. The most notable is the Bank of England’s Funding for Lending Scheme, which has provided money to banks to lend to small businesses.
Strangely, however, lending to small and medium sized enterprises fell in 2013 and 2014. This may in part have been because the businesses were not judged to be viable or their investment proposals were found wanting. It may also be due to the fact that credit terms have been ratcheted up to such an extent that perfectly viable businesses are falling too far short of the demanding criteria.
Many business owners, particularly those that have had poor experiences with the banking sector previously, have been wary of approaching the high street banks for finance. Many have previously been turned away for finance while others have experienced the wrath of banks when things got tough.
What matters is that continuous delays in financing put firms under undue financial pressure and could result in them signing up to expensive loan agreements through so-called business ‘pay-day’ lenders. The impetus may simply be because the business needs to replace vital equipment and doesn’t have time to jump through all the hoops.
They may already have been turned down by traditional lenders and have little realistic chance of securing finance from other sources.
There are better ‘alternative’ sources of finance out there. I believe the best source of finance is the British Business Bank which offers a Government-backed guarantee scheme to promote debt and equity finance to small businesses.
The scheme works with private sector partners to provide funding to small businesses and start-ups that are backable, but might lack suitable security.
In addition, the Bank has produced a series of user-friendly guides to help business owners decide what financing solutions would suit them best.
Other significant sources of finance include the various non-profit making regional funds that are structured as social enterprises and are regionally-focused.
Fixed rate loans are available up to about £100,000. Small businesses also have access to business mentors who are generally experienced investment managers. If a business needs funding to buy equipment, there may also be specialist kit grants available.
Government and independent websites offer search facilities matching requirements to sources of funding. These can often be used in conjunction with loans or traditional asset finance.
One of the most important drivers of business growth is access to finance.
More diversity and competition in the banking sector is vital if we are going to have a lasting recovery built on business investment, growth and jobs creation.
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