Factoring Insights

SMEs and survival

Invoice finance a growing business finance trend

Perhaps understandably, the commercial banks have become more risk averse in response to defaults and the financial crisis, resulting in credit facilities taking far longer to be approved, shortening loan maturity, higher collateral requirements, and - in many cases - increased cost of finance.

While our economic recovery clearly depends on companies such as yours being able to access the finance they need to invest and grow, this credit is not forthcoming from the commercial banks, who are lending less and less against the same assets.

Most SMEs still do not or will not qualify for bank overdrafts.

Although bank loans or overdrafts are commonly used, it is seldom the best option for SMEs.

The commercial banks are effectively withdrawing from the SME market, precisely at a time when SMEs can least afford it, leaving them fighting for their lives.

Most SMEs will go through a growth stage, but unfortunately their cash flow does not keep in line with this. They find themselves in a situation where they need finance, and this is where we come in.

Without a steady cash flow, every business' survival is in jeopardy.

To their detriment, SMEs are either simply not aware of alternative finance sources beyond the traditional banks, lack confidence in their ability to secure alternative finance, or think they lack the financial expertise required to assess the appropriateness of alternative sources.

Banks offer clients products, not services. Merchant Finance offers finance as a service.

The major banks assess businesses based on their balance sheets. We place the emphasis on the client's debtors' book.

Conventional banking facilities such as overdrafts do not grow with the turnover of the business, whereas with factoring there is a direct ratio between the turnover of the business and the availability of funds.

Perhaps the most important element of factoring compared to other traditional forms of finance is that it essentially looks past the balance sheet to one's debtors' book and this makes it an extremely attractive option when one's balance sheet is perhaps not healthy enough to sustain a bank loan.

Needless to say, banks do not assist clients with debt collection.