Credit crunch, what credit crunch?

SMEs defy gloomy outlook to go for growth in 2008

Despite widespread rumours of a global market slowdown, new research from Close Invoice Finance suggests that British SMEs are feeling bullish about their growth prospects. Nationally, more than half (56%) of the SMEs questioned expected their businesses to expand this year while just 6% believed that their business would contract or close down over the next 12 months.

The results suggest that although one in four SMEs (27%) considers the credit crunch to be the key issue currently facing UK businesses, they don't actually feel that it is likely to impact directly on their growth plans in the near future. Indeed, 17% of those questioned ranked 'maintaining steady cash-flow' higher among their list of concerns and 15% thought dealing with red tape was paramount.

David Thomson, Chief executive of Close Invoice Finance said: "I'm broadly encouraged by SMEs' dogged determination to keep their expansion plans on track despite the gloomy economic outlook. Provided businesses are prepared to explore funding methods such as invoice finance and asset based lending to fund their growth I see no reason why viable businesses can't succeed despite the credit crunch."

More than a quarter (27%) of SMEs told us that bank loans are currently their primary source of working capital when they need investment finance. This compares with 10% of the sample who raise capital through invoice financing. However, with banks widely expected to tighten up on the credit they extend to growing businesses, many SMEs will need to look outside traditional finance routes if they are to keep their growth plans on track. And the latest evidence is that the tide is already turning.

David Thomson explained: "Until recently, invoice finance was considered primarily as a method for managing cash-flow whereas when it came to sourcing finance for growth, businesses were limited to bank overdrafts, loans, venture capital or issuing stock. Increasingly, however, this picture is changing and invoice finance, either employed alone or in conjunction with other trade finance routes is becoming a force in corporate deal-making."

By using this route, funds are effectively coming from within the company itself, so control of the firm and its future development stays firmly in the hands of the management team, not with a costly external financier! What's more, as many of the key players in the IF field, including Close, are independent from commercial banks, invoice financiers are in a position to take a holistic view of a business's needs. This means they draw on support from dedicated trade financiers/ VC's / insurers and even banks to ensure the best deal for their client.

In the US, the appetite for asset based lending - including invoice finance and lending based on fixed assets such as plant and machinery - is huge and it's now considered one of the major routes to corporate finance with a combined market value in excess of $200 billion (figures - The Commercial Lending Association). The stimulus for market growth Stateside has been the commercial banks' reluctance to extend credit in "non standard" situations. And the credit crunch looks set to affect the UK market in the same way.

David Thomson concluded: "The invoice finance sector is already valued at £15 bn and it's growing fast - so clearly the benefits of choosing IF over traditional methods of finance are hitting home with growing businesses across the UK. And, in turn, this understanding has led many to realise that the way they source finance can really give them a competitive advantage, especially in a down turn."

If you'd like to find out more about how Close's portfolio of invoice discounting and factoring services can help your achieve your growth targets please visit www.closeinvoice.co.uk or call 0800 220 257 to discuss your requirements.