Emergency funding for businesses is tighter than ever, with major banks reducing or removing business overdrafts in the UK to the tune of nearly £8.5bn. That works at an eye-watering £35m of cash per week that is no longer available to businesses needing extra funding to expand or survive.
The availability of overdrafts, considered to be a lifeline to many SMEs, appear to have been reduced disproportionately across the UK, with northern businesses bearing the brunt of the squeeze.
London-based SMEs have been hit with a 25% reduction in the availability of overdrafts, whereas firms further north have been crushed with a whopping 55% decrease.
However, a downturn in anything is always likely to spark growth elsewhere, and business funding is no exception. With access to extra funding via traditional channels being at an all time low, UK businesses are now looking elsewhere to quickly soothe that ache.
So, what alternative business funding is available for businesses previously reliant on overdrafts?
Merchant Cash Advance
If you’re a business who takes its payments directly from customers using a card terminal, then you may want to look at an innovative new funding option called ‘merchant cash advance’. A merchant cash advance lender will look at the volume of your card sales over previous months to gauge your ability to pay back, and they will lend accordingly.
The benefits? A Merchant Cash Advance fits in with your existing terminal provider, and your repayments depend on your sales. This means that you’ll repay more during good months and less during bad months. This can be particularly ideal for businesses that cannot predict the volume of sales from one month to the next. Many businesses in retail and hospitality find this facility to be perfect for their needs.
Rather than being an innovative new form of business funding, Invoice Finance is more of a rethink of an existing idea.
The idea is simple. You need access to some funds but you just don’t have much available right now. However, you’ve recently invoiced your clients or customers and you know the funds are coming in. An invoice finance lender can advance you up to 90% of the invoice’s value immediately.
So when the client or customer weighs in with the money, you receive the remainder minus the lender’s fee. It’s a quick solution to what can be a big problem, and you’re likely to be hearing plenty more about it over the coming months and years.
These are just a couple of examples of ways to navigate around the blockades that banks are placing in front of UK businesses. Remember, funding doesn’t stop at the bank. There are some sensible and useful alternatives available to suit businesses of all types.