Factoring is fastest growing type of lending in SME sector

16/09/2010

New figures from the Institute of Chartered Accountants in England and Wales (ICAEW) has found that bank fees and costs for SMEs have increased.

It also discovered that many SMEs are unable to borrow from banks because their criteria for lending has become too strict. Another report from the National Association of Commercial Finance Brokers uncovered that only £7 billion was borrowed last year, compared to £20 billion at the height of the boom.

However, the NACFB found that the use of factor invoicing was growing in popularity among cash-strapped small firms. The report stated that this was the biggest growth area of lending.

Adam Tyler, from BBC5’s Wake Up to Money show, explained, "If you take a figure of 90 per cent - if you raise an invoice for £10,000, you'll receive £9,000 immediately. You'll receive the balance, or a percentage of the balance, once that invoice is actually settled by the company."

This option is a real alternative to borrowing from banks for many SMEs who are finding that their cash-flow has been hindered by lenders becoming more choosy about who they trust with their money.