Banks once held the keys to the kingdom in terms of financing SMEs.
This old tradition has been disrupted by ongoing economic pressures necessitating swifter resolutions to cash flow challenges.
Emboldened by an increased financial awareness, SMEs have taken to exploring asset and invoice financing, resulting in search enquiries for the terms rising by 26 per cent and 19 per cent respectively.
If these options are to be used effectively, it is vital that SMEs understand them well.
What are asset and invoice financing?
SMEs facing cash flow issues may increase working capital by using the assets they have as leverage for asset and invoice financing, rather than relying on traditional bank loans.
Through invoice financing, a loan can be secured based on the money a business is due to receive from clients or customers before it has been paid.
Meanwhile, tangible assets like equipment, property or stock can be used to secure a loan through asset financing.
What are the benefits of asset and invoice financing?
The uptick in popularity for asset and invoice financing shows that SMEs may be finding certain benefits that other financing options lack.
Both asset and invoice financing are typically faster to approve than traditional loans, meaning that extra working capital can be unlocked.
This speed comes from the fact that the current, upcoming and potential profitability of a business is considered when approving the loan, rather than just its existing financial state.
Cash flow struggles can often be temporary, caused by changing economic pressures outside of the control of the business.
When it is not possible to rectify these through standard business operations or traditional financing, a rapid boost to funds can be enough to get a business growing again or clear off liabilities.
How can SMEs manage the risks of asset and invoice financing?
While asset and invoice financing are more flexible, they are not without notable risks.
Improperly managing the finances can result in repayments being due before the invoices are paid in full, or not raising enough capital to avoid selling off the valued assets to pay off the loans.
A business would be considerably weakened by these eventualities and may face ongoing financial difficulty as a result.
Professional support is vital for managing the risks associated with any financing option.
Our team support your business by finding the right financing for you and helping you with the forecasting and budgeting required to fulfil your obligations.
Get in touch with our team for help in maintaining your cash flow.
