Five funding options to replace a business overdraft

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Businesses will need to seek alternative forms of cash solutions in the case of hard times as banks restrict lending to small companies.

While SMEs have traditionally relied on the overdraft facilities of banks to help them navigate periods of financial difficulty, this flexible and dependable emergency cash injection has been slowly reduced or removed entirely by banks since 2011.

How has this affected SMEs?

Thus far, the withdrawal of business overdrafts for SMEs has had a significantly greater affect on those in the north of the country. 55% of companies in the north have had their overdraft facilities removed compared to less than half this amount in London, where only 25% have experienced the same situation.

This has resulted in an estimated £2.9bn in lost revenue nationwide.

Where should SMEs look for alternative credit?

If your company’s overdraft has been significantly reduced or removed completely, here are five alternative credit lending options:

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The specialise recruiters at Portfolio have access to a pool of high calibre credit control candidates who will bring valuable skills to your business and help address its cash flow needs.

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  1. Merchant cash advances: this innovative form of cash-flow finance lends businesses funds based on card sales, and behaves in a similar manner to a turnover loan. Therefore, if your revenue is paid via card terminals, you’ll receive an advance based on your recent trading months.
  2. Alternative overdrafts: contact specialist lenders to discover the products available. These are likely to be similar to a traditional bank’s business overdraft. You’ll generally agree a maximum borrowing amount, then it is up to you how much you borrow at any time – thus providing you with the flexibility afforded by an overdraft from your bank.
  3. Revenue loans: turnover loans are similar to merchant cash advances in that they are determined by your recent revenue; though your loan amount is based on your balance sheets rather than card terminals. The loan amount is repaid as a percentage of future monthly revenue.
  4. eCommerce loans: these are specifically designed for firms that sell products through sites such as eBay and Amazon. The smart software scans your payment accounts and qualifies your application using real time data, allowing online traders can gain access to credit within a matter of days.
  5. Invoice finance: this is ideal for companies who trade in credit. If you have issued an invoice to a customer of your business for work already completed, you may be able to get an advance of up to 90% of the invoice’s value.