In March’s Budget, the coalition government confirmed an agreement with some of the country’s leading banks in an attempt to improve SMEs’ access to finance. The initiative, which has become known as Project Merlin, commits HSBC, Royal Bank of Scotland, Lloyds Banking Group, Barclays and Santander to making close to £200 billion worth of credit available to SMEs this year – up 15% on 2010.
But according to the latest ‘Agents’ summary of business conditions’ report from the Bank of England, small businesses continue to perceive credit conditions to be “very tight”, placing Project Merlin under intense scrutiny.
In contrast, large businesses and some medium-sized firms reported that they believed they were able to borrow if necessary to suggest that the smaller companies lack sufficient security to be offered credit.
Yet there is a plus side: the report indicated that these businesses are instead benefiting from alternative financing methods which specifically target improving the company’s cash flow.
The report says: “Small firms generally perceived credit conditions to be very tight. And many small firms were reluctant to approach banks in case it led to an increase in the cost of existing borrowings, or reductions in overdraft limits.
"There had been an increase in the use of asset based finance for investment. And some small firms were slowly making greater use of different types of financing for working capital, such as invoice discounting, that were available in place of overdrafts."
Asset based finance facilities release capital against the value of a range of business assets including debtors, stock, equipment, plant and machinery to enable the client to meet its day-to-day working capital requirements.
Due to the targeted cash flow support such solutions provide and its increasing availability – the Asset Based Finance Association recently reported that advances made by its members rose by 9% year-on-year during the first three months of 2011 – Hilton-Baird Financial Solutions maintains its view that these funding methods should be regarded as a first-choice solution rather than back-up to more traditional funding, such as bank overdrafts and credit cards.
The figures speak for themselves. According to our most recent SME Trends Index, which questioned 576 business owners about their financial health in the six months to April, asset based finance users were best equipped to deal with the changing economic conditions that affected the UK economy during that time.
For instance, asset finance and invoice finance users registered 0.70 and 0.62 in the Business Health Index, considerably stronger scores than firms using credit cards and/or family and friends (0.23) and bank overdrafts (-0.05) to fund their business. And while 52% of invoice finance users reported a rise in turnover, just 37% of overdraft users could boast the same.
As the UK’s leading independent commercial finance broker, Hilton-Baird can assess your business’ specific funding needs and match your requirements with the most suitable facility and funder on the market.
Call 0800 9774833 to find out more about how we can assist, or alternatively get an invoice finance quote in three easy steps.