- 12 Jul
"Please increase overdraft" - it sounds like a desperate plea to your bank manager!
Limitations Of Overdraft
Many UK businesses use this kind of traditional bank finance, our high growth business research found fast growth businesses relying on loans (43%) and overdrafts (31%). We also found that 44% of startups that used loans or overdraft told us that they had less funding than they needed for their business.
The British Banking Association figures published 30th June 2017, showed 2 out of 10 SME applications being turned down by banks, that's 20% that don't get approved for the funding that they applied for. Their figures also reported the aggregate of approved loan and overdraft facilities being 13% lower than the same quarter the previous year - not good for liquidity in an economy that is growing, albeit slowly.
The Invoice Finance Option
There are forms of alternative finance to traditional overdrafts (OD) or loans, invoice finance is one of the options. It is a little known option, with 1 in 3 eligible businesses telling our recent survey that they were not aware of the option.
Perhaps you are already at your maximum overdraft limit, or are worried about what happens if you go over your overdraft? Our research has indicated that far greater levels of funding can often be achieved through the use of invoice finance compared to overdraft, perhaps around 16 times higher in some cases. In addition, you can often have invoice finance (IF) alongside your overdraft, even if they are with different finance providers. Alternatively, in many cases that we deal with, the IF repays all, or part of the OD and releases further cash on top of what you had previously. You will also be spreading your risk by having multiple sources of finance, rather than having all your eggs in one basket.
Finance With Poor Credit History
Many people do not even bother applying for finance as they fear that they will get turned down for it. We have lenders on our panel that will provide invoice finance, on the strength of your debtor book rather than your balance sheet (like bank funding) or your personal worth. Even with prior adverse credit history we are most likely to be able to help you, including CCJs, existing CVAs or even prior bankruptcy.
Increase Overdraft Or Alternative Finance?
So rather than having to ask your bank manager "can I increase my overdraft limit?" you might be interested in looking at an alternative finance option that is not based on your financial strength, but the strength of your customers and the collectability of your invoices, which is likely to be able to release even more cash to fund your growth.