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What is the answer to the dangers of bad SME debt?

According to new research, more than a third of SMEs rely on the personal guarantees of their owners to secure bank loans, overdrafts and other debt forms. This vulnerability underlines why invoice finance has become so popular.

The Legal & General study also shows that over 50% of SMEs have no cover in place should the business owner become incapacitated and that more than half of businesses have some form of corporate debt, at an average of nearly £150,000.

Why is there so much vulnerability in the SME sector? Well, the situation illustrates just how difficult it has been to access small business lending in recent years, the blame for which lies, partly at least, at the door of cautious banks. With loans and overdrafts increasingly difficult to secure, it is clear that business owners have been forced to use personal funds or assets to generate start-up funding or maintain cashflow.

The precarious position of many SMEs also underlines why alternative finance, and in particular invoice finance, has flourished, and will continue to do so. The transparency, flexibility and affordability of invoice finance have offered small businesses a lifeline at a time when traditional lenders have kept their doors shut.

Invoice finance, and alternative finance as a whole, remains a minority player in terms of small business lending, but its share of the market is growing and, tellingly, banks are angling for a piece of the pie. Metro Bank has become the latest high-street lender to do so, following Santander’s collaboration with the Funding Circle and Barclay’s interest in peer-to-peer lending.

Despite the various SME funding schemes and initiatives, as this new data shows, accessing business lending remains a major challenge. Just as clear is the role that invoice finance is playing in helping provide a surer financial footing.

To find out more about A&T Business Associates services, contact us on 01903 602211 or info@atbusinessassociates.co.uk.

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