It is clear that the upper tiers of the economy are doing very well. But lower down, things are still very tough. And there are a lot of negative indicators on the horizon including ongoing Eurozone stagnation, uncertainty about IS and Ukraine, Ebola and the prospect of the election of a business unfriendly government in May 2015.
Uncertainty breeds lack of confidence and this means that even if business owners are willing to invest, they find it very hard to get the financial backing they need. Banks are still very reluctant to fund smaller businesses and we are seeing an increasing number of referrals from bankers who at the relationship level are happy to support an increased facility, but are unable to get credit committee approval.
The emergence of crowd funding has also impacted the market with a host of platforms offering loans with very little security albeit at penal rates. For businesses selling to blue chip debtors, the invoice trading platforms also offer an attractive solution with the ability to place one off deals at very attractive rates with no long term commitment.
The middle path, as we see it, constitutes seeking to form long term relationships based not on the strength of a contract but on the quality of an alternative finance provider’s service. To use Working Capital Partners as an example, we have an increasing number of clients who came to us for short term funding but have stayed because they value the flexibility and personal service that they get from our team.
Selective invoice finance is relatively uncommon in the UK, largely because it needs a specialised approach which includes rapid response to initial enquiry, an open and flexible approach to credit and a willingness to work with small business owners to provide the finance they need to grow. And with credit as tight as it is in the market in general there also has to be an awareness of fraud with an increased number of cases reported often from “serial offenders”.
We believe that small business in the UK will continue to seek out and utilise selective invoice finance as part of their funding mix until they reach a size that full factoring or CID becomes a better and more economic choice.