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Hitting the sweet spot with working capital


In the first three months of the year, bank lending to small businesses may just have turned a corner.

The Bank of England figures for the quarter show that high street banks lent an extra £600 million of credit to small businesses under its Funding for Lending scheme, whereas in 2014 the amount they lent to SMEs fell by £500 million a quarter, with repayments persistently exceeding new loans.

The UK government’s flagship Funding for Lending scheme was a central tenet of the coalition government over the past five years, earmarking funds to be used solely as accessible and affordable loans to those businesses that form the backbone of the British economy.

The idea is a good one for SMEs, but unfortunately until now has had trouble getting off the ground. And rather than being a result of banks’ feeling of benevolence towards small businesses, the recent rise in lending, one could argue, reflects the growing confidence on the high street, as shoppers part with more cash, as well as in the business environment.

Against this positive sentiment, small businesses are willing to invest in growing their trade, and access to affordable loans makes this possible. However, much of the £600 million of additional bank funding will not have reached many of the 5.2 million small businesses currently trading in the UK.

For many of these businesses, bank loans just aren’t an option. The requirements that must be met before a bank agrees to hand over capital can simply be too much for a chocolate making business that has only been trading a year, for example. It’s a perishable, seasonable product that relies on high levels of sales and marketing investment. Nothing concrete that a bank can secure against.

It is also the case that business loans won’t suit everyone. For many they are just not flexible enough to warrant the commitment, as much small business activity can vary wildly month to month, and there can be significant cash flow bumps along the way – all of which make committing to repayments problematic.

Take our chocolatier, for example. While there may be plenty of orders coming through the door, the costs of labour and ingredients, not to mention the often long delay between handing over the goods and getting paid, mean there might be little cash left over at the end of a busy month, but plenty inbound on the books.

To fill this funding gap, many businesses are now looking to alternative forms of finance, which offer more flexible solutions. Crowdsourcing and peer-to-peer lending have hit the headlines of late as they can be a great option for start-ups with bright ideas, but not so good for the more general day to day needs of a business.

Another option is using the invoice book as an asset against which to raise finance. Many small businesses will know the agony of waiting to be paid for a job that was done weeks, or even months ago.

The new generation of technology means that people no longer have to endure the wait, but can access at the touch of a button the cash they need to keep their business running smoothly. Tungsten is spearheading this finance technology, with thousands of suppliers now eligible to access Early Payments on invoices filed through a simple online e-invoicing system.

The phrase “cash is king” is often used, and for good reason. No matter how large the order for chocolate rabbits tomorrow, if there is no money to buy ingredients or pay people to make them today, any chocolatier would struggle.

Sweet success in running a business comes from careful planning, a passionate commitment to being the best you can be, and enough available cash to keep your business moving.


About the author

Henning Holter

Henning Holter is Head of Business Development at Tungsten Network Finance. Henning has led the development of a number of private-equity funded technology start-ups, and held senior sales and business development roles in international listed companies. Henning received his B.Sc. in Industrial Engineering and Operations Research from the University of California at Berkeley, and his MBA from INSEAD. He has also served as a commissioned officer in the Royal Norwegian Navy.



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