UK start-ups caught in credit catch-22
Half of those rejected for finance told they haven’t been trading long enough
Nearly half of SMEs rejected for finance were turned down because they hadn’t been trading long enough, according to a study of 1,000 businesses conducted by the UK’s largest independent invoice finance provider, Bibby Financial Services (BFS).
The survey also found that one in five SMEs had been turned down for finance in the last year, underlining difficulties faced by many businesses in securing funding – despite the upturn in the economy.
David Postings, chief executive officer at Bibby Financial Services said: “Accessing finance is still a challenge for a large number of viable businesses. The fact that half of those turned away were told they hadn’t been in business long enough underlines a familiar catch-22 where owners require funding to kick-start or grow their businesses, but need a track record to obtain funds.
“If we truly want to support businesses in the UK, we need to find a way of supporting them from start-up and early stages, right the way through to maturity.”
The research identified that nearly of half of SMEs (44%) are turning to self-funding – using their own savings or borrowing from friends or family – perhaps in part driven by the difficulty of obtaining funding during the early days of trading.
Postings is urging more early-stage businesses to consider invoice finance solutions such as Bibby Financial Services’ own Forward Finance product which considers the strength of the sales ledger; taking into consideration the pipeline of a business – not just past performance or length of trading.
David continued: “Companies need to be able to prove to any funder that they are financially robust and have a sustainable revenue stream. With invoice finance, if a relatively new company can show that their order book is strong, they can be just as viable a prospect as a company that has been around for several years.”
Founder and owner of Essex-based training provider, Training2Care, Glenn Knight was rejected for bank credit when the business was looking to grow. He now uses invoice finance from Bibby Financial Services.
Glenn said: “As a young company we had invested money back into the businesses but this wasn’t showing as profit so when we went to the banks for a loan, we were refused – so we started to look into invoice finance.
“The service helps us to reduce our staff costs, as we don’t have to employ accountants to chase payments, and it keeps us in a good position with our clients as it’s not us chasing them for payment.
“We have big plans for the future, including opening our own nursing home, and I am confident our invoice finance arrangement will help us continue to grow and achieve this goal.”
