British businesses can no longer rely on their bank for an overdraft
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Whether you run a seasonal business that makes most of its sales at one point during the year, or have clients notorious for missing their payment deadlines, a healthy cash flow in your business can often be the difference between make or break.
As a small business owner, there are plenty of things that could keep you up at night. Hitting sales targets; finding and keeping the best staff; getting time to spend on marketing… the list goes on.
According to research by Barclays, though, the number one thing that keeps business owners up at night is cash flow.*
It’s not hard to see why. Whether you run a seasonal business that makes most of its sales at one point during the year, or have clients notorious for missing their payment deadlines, a healthy cash flow in your business can often be the difference between make or break.
For decades, the bank overdraft has been a popular way for SMEs to stay on top of cash flow. However, statistics show that the high-street banks are becoming more and more reluctant to grant their business customers that kind of flexibility. So much so that, as of December 2017, there was reportedly an overdraft funding gap of £18bn.** The extent of this gap is made all the more alarming when you consider that the population of SMEs in the UK is on the rise.
On top of a shrinking appetite for business lending, The Times reported that it’s also becoming more difficult simply to get an application off the ground. Some banks, for example, have gotten rid of their regional relationship managers, instead expecting SME owners to phone a call centre and discuss terms with someone who may not even know the local area.
Luckily, the growth of non-bank finance options such as peer-to-peer (P2P) term loans or invoice finance means there are other ways for businesses to get finance outside of their bank. Or, for those that would prefer the ease and flexibility of an overdraft, there’s the likes of Growth Street – a revolving credit facility that can be managed in a similar way.
There may still be a long way to go before these types of finance fill the gap left by banks, but they’re becoming increasingly popular. Industry body UK Finance published guidance for small businesses earlier this year, encouraging them to “look into alternative finance options” in order to adapt more effectively to an evolving economy. While in 2017, £2bn was lent out by P2P business lenders – a 66% year-on-year rate of growth.
Next time your business decides to look for a cash flow solution, are you confident that the traditional routes are going to be the best place to start? Perhaps it’s time to start thinking beyond what your bank can offer.
*Barclays internal research for Barclays Business Banking – Open Up Challenge Session, November 2017
**Bank of England quarterly release aggregates Q4 2017
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