SMEs who are turned down for lending by their banks no longer face an awkward ‘Catch-22’ situation, according to invoice finance specialist Bibby Financial Services.
Until now, the problem has been that banks want a demonstrable track record before they will approve lending, but the lending itself may be required in order to get a fledgling business properly established.
As a result, those attempting to set up a company for the first time are unable to gain the track record without the funding, and unable to access the finance without the track record.
Bibby found that around half of businesses turned down for lending by their bank were rejected because they “hadn’t been trading long enough”.
CEO David Postings said: “If we truly want to support businesses in theUK, we need to find a way of supporting them from start-up and early stages, right the way through to maturity.
“With invoice finance, if a relatively new company can show that their order book is strong, they can be just as viable a prospect as a company that has been around for several years.”
Invoice finance allows companies to receive lending based on the value of their outstanding invoices – for an appropriate fee – to keep their cash flow healthier until payment is received from the customer.
It is just one alternative form of lending that has become more commonplace since the onset of the recession in 2008, as businesses have looked for new ways to boost their cash flow prospects.
And it could be set to see further activity in the future, along with other alternative funding options, following government proposals to require banks that turn down applications for loans to refer SMEs to possible alternative lenders.
This could finally enable fledgling businesses to find a lender less concerned with the duration of their track record – and bring the impossible Catch-22 situation to an end.