Since the economic downturn, demand for credit has exceeded supply, particularly for small businesses. High Street banks on one hand have to face maturing liabilities in the short-term, and on the other hand have to restructure their balance sheets to accommodate for regulatory changes. With sluggish growth in the UK and dangers constantly coming from the eurozone, small business are still expected to face hardship for some time in the future. While some banks are “too big to fail”, we cannot underestimate the ripple effect that failing SMEs will bring to the UK’s economy. However, the bankers are not doing their job to help the economy. According to the British Bankers’ Association, banks want to lend to businesses that are viable and that can demonstrate they are able to repay the borrowing. In fact, banks now mainly lend to safer, larger businesses (which arguably already have their finance options in place), and raise the bar for small businesses to borrow money.
This has started to cause a breakdown of trust between British businesses and institutional lenders. The Bank of England report noted that small businesses fear that asking their bank for a loan will set off alarm bells and lead to stricter conditions for existing credit, such as restricting the overdraft limit or steeper interest rates. Chuka Umunna, Labour’s Shadow Minister for Small Business, said that the Bank of England report showed that there was a huge disconnect between what the banks are saying and what small businesses are experiencing. It is not surprising to see that SMEs are now approaching alternative financing sources, most notably invoice financing.
While some small businesses opt for the more costly options such as [[invoice discounting]] and [[factoring]], new innovative alternatives have been successful following the financial crisis. MarketInvoice is one of those companies, which provide small businesses a platform to sell their invoices to investors. SMEs are able to sell only [[Selective invoice discounting|selected invoices]] to a single debtor, should they so wish. Institutional investors bid competitively against each other to give the financing option to businesses, which can go up to 90% advance rates with just 0.5% discounting fees. The growing business has currently more than 20 sellers in which many returned to selectively sell invoices to blue-chip debtors on regular basis – a testimony to the multiple effectiveness and benefits of using MarketInvoice as a financing platform.