SMEs in the UK are increasingly turning to alternative forms of
finance in a bid to avoid failure. Cash flow problems have led to
an increase in credit cards and personal savings being used to
The International Trade Monitor (ITM) revealed that a lack of
confidence in credit availability has led to more than one fifth of
SMEs looking at alternate sources. The top three sources of funding
being considered are: Asset-based finance (44 per cent), factoring
account receivables (31 per cent) and personal savings (26 per
Of those looking outside of banks for financing 20 per cent said
they had considered using credit cards. One in ten indicated they
had actually done so.
Gareth Heald, UK finance director at Western Business Solutions,
said, "The fact that businesses are increasingly turning away
from banks and dipping into their own personal savings- and credit
cards- is a real worry."
On top of this, research conducted by ABN AMRO Commercial
Finance found that most SMEs would survive less than three months
without overdrafts. Despite this many are seeing their overdraft
limits reduced and fees increased.
Almost 90 per cent of respondents admit that their business
would only last three months if access to an overdraft were
removed. Most commonly it was used to cover 'cash flow
Almost three quarters (71 per cent) of those questioned have
seen their overdraft limit reduced, while 86 per cent have seen
overdraft fees rise.
Peter Ewan, managing director at ABN AMRO Commercial Finance,
said "SMEs are clearly relying more and more on their
overdrafts as a cash flow stopgap during tough times. But this
practice could become dangerous if banks are unable to ensure
funding is consistent."
As a result the confidence of SMEs has fallen. Between July and
September only 46 per cent of SMEs were confident about the current
UK economic climate. This is down from 51 per cent when compared to
the previous quarter.
Importers and exporters were particularly concerned about the
instability in the eurozone with 61 per cent saying it was a major
The ITM did show some green shoots of positivity with many SMEs
planning to increase trade with emerging markets. This has become a
necessity for many as the eurozone continues to contract.
Mr Heald added, "[This] suggests SMEs are not sitting on
their hands waiting for things to improve, they are creating their
The research highlights how tight margins can be for SMEs and
receiving late payments or suffering bad debt could be the final
straw for a small firm. Conducting credit checks and keeping an eye
on customers can help businesses prevent this. Graydon UK offers
international credit reports as well as UK ones.