Is factoring becoming a vital SME service?

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Lord Green, trade minister and former HSBC chairman, has waded into the debate over the performance of Project Merlin, while a Bank of England report has underlined the plight of SMEs and how the use of factoring and niche products such as selective invoice finance is increasing in this sector.

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 for fear an imminent base rate increase would translate into increased borrowing costs, 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, according to the Bank of England, that 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 factoring or 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.

To find out more about Tandem Invoice Finance services, contact us on 0845 618 8515 or info@tandemuk.com.