By Daniel Hunter

The latest biannual SME Trends Index research from Hilton-Baird Financial Solutions has found that businesses who access 'quick-fix finance' are storing up problems for their future.

Businesses who choose short-term solutions such as credit cards and loans often suffer with restricted business growth, sluggish productivity and a lower turnover.

The research, which questioned 454 business owners and finance directors in April 2012, highlighted the challenges businesses have faced in the last six months in finding suitable finance facilities to grow their businesses. This has been set against the backdrop of the first double-dip recession in the UK since the 1970s, along with the ongoing eurozone crisis.

Less than half stated that they had secured new funding facilities in the six months to April 2012 (42%), however, the various form of finance highlighted in the survey suggests that businesses are increasingly choosing to secure a 'quick-fix'. The figures suggest that businesses are opting for the easy way out when it comes to facing up to their cash flow problems.

Additionally, the survey uncovered that over half the respondents rely on business credit cards (51%), with 47% using bank overdrafts to keep afloat. Conversely, only 18% are utilising bespoke financing options such as invoice finance, which effectively releases cash against a business’s sales ledger, despite being a proven and flexible option.

“The latest findings from our survey convey an alarming picture that businesses are increasingly taking a short-term view, often as this is considered to be the easy option, when it comes to financing their business." Evette Orams, Managing Director of Hilton-Baird Financial Services, commented.

"In our experience it is vital for businesses to explore all the available options, in order to find the right solution for their current needs, without compromising the longer term future of their business.

“There are many more funding options available for businesses than there may seem and there is often no need to turn to payday loans and credit cards. Invoice finance is an effective, proven and highly flexible option.

"By releasing cash against a company’s sales ledger, it bridges the gap between an invoice being raised on credit terms and the date the payment is received, which nowadays sadly is significantly beyond the actual terms of the credit, with late payments being a significant problem.”

Interestingly, those businesses that have done their research about the various forms of finance available experienced a growth in turnover. In particular, the proportion of invoice finance users reporting a rise in turnover during the six months to April 2012 was significantly higher, at 57%, than those who opted for overdraft facilities (36%) and personal credit cards (32%).

When questioned about their needs for additional funding, our respondents stated that cash flow management (16%) alongside an inability to access funding (7%) was their primary concerns over the next six months. Generating new business was also identified as a key concern for a third of businesses over the next six months.

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