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Devon Life Business & Professional looks at small business capital

PUBLISHED: 13:58 05 July 2012 | UPDATED: 21:35 20 February 2013

Devon Life Business & Professional looks at small business capital

Devon Life Business & Professional looks at small business capital

Ask anyone who runs a small business to tell you what keeps them awake at night, and you will invariably get the same answer - cash flow

Ask anyone who runs a small business to tell you what keeps them awake at night, and you will invariably get the same answer - cash flow

Here in Devon there are well over 30,000 small businesses, generating 67% of the Countys GDP thats a lot of sleepless nights.
Despite various Government initiatives to kick-start lending by the High Street banks, our companies still say they are being starved of cash and borrowing costs are rising. Business leaders blame a lack of new money and accuse the banks of churning, lending the same money at ever-increasing rates. In their defence, the banks say they are lending but at the same time having to build up their own balance sheets to comply with tougher capital and liquidity regulations.
So, with the Government and the banks in deadlock, a third way is gaining credibility - alternative funding.
Alternative funding covers three main areas: invoice discounting, leasing and asset finance, and commercial mortgages. It seems there is money out there, its just a case of finding it.
David Shephard, Chairman of Devons Federation of Small Businesses, agrees that there is a lack of competition amongst commercial banks in the High Street and recognises the need for a new approach.
The concept of lending has changed rapidly in the last few years. In many cases the costs involved in alternative forms of finance are competitive compared to the conventional 3-4-year business development loans, and thats if you can get one! Its got so bad that some businesses are borrowing on credit cards because they are cheaper short-term than the banks.
Businesses need finance for a variety of reasons, including short-term cash flow or working capital, asset purchases, business development, the purchase of stock, and the financing of imports or exports. Research shows that most small businesses have some awareness of the types of finance products available, but often do not know where to find them. Business Consultant Andrew Martin says the Government needs to take some responsibility.
Their guaranteed loan products are too administratively burdensome and still require guarantees. I, and my peers have enquired about the feasibility of the Enterprise Finance Guarantee Scheme (EFGS) for clients - only to be advised that it is not appropriate or worthwhile. Yet this product is designed to enable the bank to provide loans of last resort - to assist the very people that do not have the ability to guarantee or secure borrowing.
The National Association of Commercial Finance Brokers (NACFB) based in Exeter has been helping fund UK businesses for 20 years. Chairman Adam Tyler has tirelessly lobbied the Government and cross-party Parliamentary groups about the need for a credible provider of alternative funding. In March, the NACFB launched an online directory of around 1,000 sources of commercial finance for small businesses. It is the first comprehensive directory of its kind, and although it covers the whole of the UK, Devon businesses will benefit from a search facility based on the region, town or postcode of local sources of finance and brokers.
Tim Jones of the Devon & Cornwall Business council says any help out there is welcome. For all their grand words, the banks are still not lending, its a problem right across Europe, not just here. The market needs alternatives. Weve been dominated by the banks for too long. I understand the onerous regulation faced by the banks but small businesses are the lifeblood of our recovery. To abandon them now would be to jeopardise prosperity for the next decade.
So, at this critical time for the economy and those trying to dig us out of recession, perhaps we should start to think outside the box, now that it seems we cant always bank on the banks.

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