I am posting excerpts from an article first posted in a financial technology and commercial finance blog. The full original article can be found here.
The original post was in response to an accounting advisor making the comment that there was no real lending problem for businesses and that only the ‘suckers’ are not finding finance.
Banks say that business credit quality is low, as is demand. Businesses say that banks are not giving them what they need and many don’t bother applying. Businesses that fail to find the credit they need are not ‘suckers’ or poor credits. They are simply mismatched to the type of lending (and in many cases, the lender) that they are applying for.
The first port of call for a business that realises it needs cash is generally the accountant /advisor, or the bank manager. Depending on the financial institution and where it is located, the bank manager may turn down the facility request, reduce it drastically or turn it down down. A few may refer the customer to the bank’s own invoice finance affiliate.
Those with a good advisor, a friendly asset financier and a willingness to go beyond an overdraft or traditional facility discover age-old and historically popular invoice finance. Although this can be more expensive than traditional bank facilities, it ends up being the best solution if managed correctly.
So there is a way out of the current financing gap, cant we just snap our fingers?
It is workable, but will require lenders and policy makers to do a lot more to educate SMBs and their accountants/advisors on ways to finance working capital. Brokers and accountants/advisors do a great job, and are active introducers to the asset lending community. But they are clearly not talking to as many businesses as they would like to.
We also need to recognise that arranging finance is time intensive for both lenders and borrowers. For that matter, invoicing and collecting is not exactly a breeze for businesses either.
Everything is done manually, because, well, if its been done that way for 20 years, it must be right!
We can do more to educate the business community and importantly, their advisors on more efficient ways to manage working capital.
As for improving the way businesses manage collections and connect with the right lenders, that’s Bilbus’ mission.
If the businesses who need to free cash flow are ‘suckers’, sign me up and send me the badge!