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What options are available to firms struggling to access business lending?

Date Added: 01/11/2013  

Small business owners are still finding it hard to access loans from the high street, but there are more options than ever before for bosses looking to grow their firms.

With lenders tightening their criteria in a bid to protect themselves from losses, many small to medium-sized enterprises (SMEs) have all but given up on getting a loan from a household name bank.

However, non-bank lending to small businesses is up to a five-year high, showing that although the high street has closed its doors, there are still ways for companies to boost their finances.

According to the National Association of Commercial Finance Brokers (NACFB), leasing and asset finance have more than doubled since 2011, showing how entrepreneurs are looking to new and innovative ways to provide finance for their firms.

Adam Tyler, chief executive of the NACFB, told the Financial Times: "Alternative finance is providing life support to the sickly SME market and will be vital to give it extra impetus to boost the economic recovery."

He added peer-to-peer lending, asset finance and leasing are increasingly "plugging a vital gap".

The government is currently considering a new plan to use taxpayer money to guarantee loan insurance for small businesses through its new Business Bank, but many SMEs cannot afford to wait any longer and will have to find money quickly to survive.

A spokesman for the Department for Business, which runs the Business Bank, would only tell the Times that this is one of the options the government is considering as it aims to improve the flow of credit to UK SMEs.

Factoring is one tactic many companies are increasingly using, with this being when a business sells its invoices to a third party at a discount in order to get the cash faster. With late payments proving to be devastating for a lot of SMEs, this can be a good way around the issue.

Others are using invoice discounting, which is similar to financing but which allows an organisation to take money against its sales invoices before the other party has paid in full. The financial arrangement involved in this is different to factoring, though the end result is similar.

However hard to access lending off the high street it might get for SMEs, research is showing the resilience of small business owners will allow them to find a way to thrive.

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