Decline in Bank Lending
Bank lending has declined in such away that they are not even giving to themselves, never mind to their customers. On the rare occasion that an overdraft or loan facility is offered, unless you have several years of very positive accounts, the terms are usually too toxic to your business, you cannot accept them.
Decline in Bank Facilities
Despite criticism from all angles to lend more to business, the banking system on the whole is still reeling from the credit crunch and as a direct consequence there isn't the availability of credit there once was.
Whereas many UK businesses could obtain overdrafts, revolving credit accounts and loan facilities through to secured commercial lending current demand has far outstripped the supply and as a result the banks have tightened up the terms of their facilities.
Risk v Cost
The traditional bank borrowing model is to look at what your business has done and then offer you a facility in which your expected future performance will be used to repay that facility. The less risk you present to the bank, the lower the cost of the facility to you.
There are two main issues to this model
If you are in the first 24 months of trading you are generally deemed to be at an adverse risk and will either, not get a facility or if you do, the terms will likely include a charge on your private home and personal guarantee in addition to excess fees and charges.
If you had an exceptional couple of years, and the bank issue you a facility, likely secured in any case, and the business then declines, you will be at risk of not being able to maintain the facility and putting your security at risk.
Invoice finance only advances to you the money you have already made from sales but is tied up in your invoice terms and late payments from customers
If your sales do dip, you are not left paying monthly loan payments when the business might not be in a position to afford them.
If you are in those first 24 months of trading when growth can be explosive, invoice finance in there, injecting cash from that growth, without delay.
Invoice finance is flexible and cost effective and above all else, completely removes the biggest threat to half of all UK businesses, namely late payments of customer invoices.
