Bank caution fuels alternative credit solutions

Banks have become increasingly cautious with regards to credit facilities. The Bank of England’s regional agents have cited rising costs as a key factor in determining whether companies can secure finance.

There are greater security checks involved for new lending and fees have also increased, which has resulted in many businesses shying away from traditional bank lending and looking towards other avenues for funding. There is the suggestion that businesses are being left with no choice and are being ‘pushed’ into Asset Based Lending options such as invoice finance.

Peter Ewen, Managing Director of ABN AMRO Commercial Finance, isn’t surprised that businesses are exploring other financing avenues. “Caution in business has been the prevailing theme for some time now and increasingly stringent regulations has led banks, and businesses, to a more prudent approach to their lending”, he says.

“However, it’s not true that businesses are being ‘pushed’ into using Asset Based Lending. Many businesses are turning to ABL as a sustainable solution to growth, more suited to the current economic climate than traditional bank overdrafts.”

Although ABL has traditionally been seen as an option for businesses with cashflow problems, it’s now viewed as a viable alternative to traditional bank credit, especially with the current squeeze on payment terms and the cost of servicing debt.

“Though the government has encouraged lending to businesses, we continue to hear that lending targets have not been met due to a depressed demand for external credit, possibly based on a lack of confidence in overdrafts and debt finance,” Peter says.

“ABL is an ideal solution for those with proven business models, helping them to grow organically and fight their way back to success, using the finance locked up in their own assets. As a result, funding solutions that focus on real assets rather than debt will only continue to grow in popularity.” 

 

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