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More SMEs turning to invoice finance

The debate over the performance of Project Merlin has heated up, with Lord Green, trade minister and former HSBC chairman, throwing his hat into the ring, while the Bank of England has issued a report that highlights a growing trend among SMEs for alternative business finance.
Lord Green has recently criticised the banks over their failure to meet first-quarter SME lending targets under Project Merlin, claiming they were “behind the curve”. The statement places a major question mark against recent government information that appeared to suggest that these early goals had been meet.
At the same time, a Bank of England report has rubber stamped what SMEs have been reporting for some time, that credit conditions continue to be perceived as being very tight. The report also found that many small firms were reluctant to approach banks in case it led to an increase in the cost of existing borrowing, or a reduction in overdraft limits.
These findings help paint a clearer picture of what lies behind the division between SMEs and banks over small business banking. It would seem that, according to the Bank of England, mistrust of the big banks remains a major stumbling block.
Interestingly, the report also mentions an increase in the use of asset-based finance for investment and a rise in the use of different types of financing for working capital, such as invoice discounting. This information underlines a growing trend in small business finance, and with SMEs still uncertain of big banks, suggests that services such as invoice finance are likely to become a lot more popular.
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