By Russell Gould, Managing Director of Everline
Access to cash is vital to small business operations. Disappointingly more than a quarter (29%) of SMEs told us they are not able to grow because of a lack of access to cash . Whether it’s to cover invoices that are paid late, or a desire to take advantage of discounted stock prices, access to cash is critical to small businesses. However, over half (51%) of those we asked think traditional lenders aren’t interested in lending to them . Something clearly isn’t working with the current system and small businesses are suffering as a result.
Securing a loan via a bank can be hard in itself – traditional lenders are putting a lot of hurdles in the way. They often require a complicated application process with lots of form filling and supporting documentation needed. The application then has to go through various stages of credit approval meaning that a typical business loan application can take days to complete, weeks to be approved and even longer for the funds to arrive.
However, this is not the only problem. There is significant demand among SMEs for small, short term amounts of working capital credit, often less than £50,000, but banks simply aren’t set up to provide this kind of rapid and flexible funding. The credit they provide is usually more suited to bigger businesses – available for fixed periods (often more than a year), with little flexibility and requiring asset-based security, for example.
We have recently witnessed the launch of a variety of incentives that are designed to kick-start SME lending in the UK, including the Funding for Lending and Business Bank schemes. However, the numbers do not reflect any increase in bank-lending. In fact 35% of bank loan applications are being rejected , and the Bank of England lending figures from January this year show a drop of £300m in small business lending.
Even positive lending figures issued by the banks are often not giving the overall picture. Commonly, bank’s figures only include companies that have gone through the entire application process, omitting those that have enquired and not got that far – those whose relationship or business manager at the bank has suggested they are likely to be rejected for a loan. Rather than more government banking schemes, investment in, support for and promotion of alternative routes to finance are needed to secure the future success of the country’s SMEs.
Astute business owners and directors recognise the need for agility, and are demanding more flexible, credit services that allow them to control how much they want to borrow and for how long.
The traditional model is not working. For SMEs time is money and flexibility is crucial because when customers pay late and seasons change, cash can dry up.
Technology savvy lenders can make use of digital tools and big data to fill this gap and greatly improve the options available to SMEs. At Everline, we help small businesses to run more efficiently by providing access to additional working capital funding whenever they need it, with all unnecessary barriers removed. Our application process is all online, and is straightforward to complete. This is where alternative funding can become a strong option compared to traditional bank lending which takes significant time, effort and patience.
Small business owners must ensure that they research all of their options when looking for funding. The bank is not the only option and alternative lending is not something to just look into if a bank turns you down. When looking for flexible, working capital finance to bridge a gap in cash flow or to provide a boost to an expanding business, alternative lending might be a better answer. Small business owners need to read up on all the options available to them, talk to other business owners, and consider all routes before selecting the best one.