Thursday, 15 April 2010

SME's Shun Bank Finance Offerings

Interesting report today that "less than half SMEs have taken action [to address cashflow pressures] with 11pc hiring an in-house credit controller, 9pc using invoice discounting and 8pc factoring". There are over 4.7 million SMEs in the UK (see demographics below).

According to the Telegraph:
"Peter Ibbetson, chairman of NatWest and RBS small business operations, is concerned that so few SMEs are using banking services to alleviate the problem but small business organisations believe companies are reluctant to incur extra charges after their bank borrowing experiences."
In other words, it appears SMEs would rather leave debt on their books, taking any loss and resulting income tax deduction, than become hog-tied by a bank at rates of about 36%APR in consumer finance terms - at least that's the rate we estimated Zopa lenders would have to beat to offer attractive trade finance. That's because you should factor in (excuse the pun) the charges on any additional accounts you're required to hold as part of the finance deal, the holding cost of any deposit held as a guarantee, as well as fees and the interest rate on any overdraft, loans, letters of credit and/or factoring. SME owners are also increasingly required to take a commercial credit card, which doesn't benefit from protection from all the old dirty tricks that are gradually being weeded out under consumer banking and finance regulation.

Yet more evidence the time is ripe for an alternative source of SME trade finance?

The most recent UK government statistics (published Oct '09) show that, at the start of 2008, there were 4.8 million UK private sector enterprises of which 99.3 per cent had 0 to 49 employees. Only 27,000 (0.6 per cent) had 50 to 249 employees and 6,000 (0.1 per cent) employed 250 people or more.
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