It’s still horrendously difficult for SMEs to prise funding out of the banks. Despite the government’s best efforts, they just don’t seem to be cooperating. Even Vince Cable, the Business Secretary, appears to have given up. Last month, at the Investec Entrepreneurs’ Summit, he said that the banks have their own problems and entrepreneurs should stop blaming them and find alternative funding for survival and growth.
When they are battling to survive or move forward because of late payments, small businesses may only need short term loan arrangements. There are several options for these.
Originally a pay day loan company for individuals, Wonga recently began offering short term business loans. These have a very high APR but as short term at Wonga means a month at most, it doesn’t add up to much unless you default on the repayment, which could be very costly indeed. Don’t use Wonga unless you are completely confident that you will have the repayment funds in your bank account by 5am on the date you have chosen for the end of the loan. The amount will be collected from your debit card on that day. Your loan can be up to £400 initially. After that the ceiling may be lifted by negotiation.
If you use a factoring company, you send them copies of your invoices and they will release up to 85% of the amount payable to you straight away. This is particularly useful if you have your own suppliers to pay and can avoid interest being added, or take advantage of discounts for early payment. In some cases it’s been known to make a difference to whether or not an employer could pay wages and salaries on time. And because they will do the credit management work for you, you have the time and money to concentrate on other aspects of business success. The downside is that they will take a cut of the balance when the invoice is paid, or there may be a monthly fee to pay whether or not you use the service.
If you are in the business to business sector, you might be able to avoid the monthly fee by using marketinvoice.com, which acts as an invoice auctioneer. The buyer of your invoice pays you the agreed percentage at the close of the auction and once your client has paid the invoice amount to Market Invoice, you and the buyer will be paid the appropriate amounts less a small fee. Market Invoice typically deals with large invoice amounts and will scrutinise your company before accepting your invoices for auction.
These are just a few of the alternative funding options available. If you are having cash flow problems, your outsourced bookkeepers should be pleased to discuss these or tell you about others they know about.