Wednesday, 5 December 2012
Credit availability still falling for small businesses
A report by the lawyers, Allen & Overy, said rules forcing banks to hold more capital are already reducing credit for small companies, while proposals to increase regulation on non-bank lenders “raise serious questions” about whether they will be able to meet the needs of small business.
The non-bank lenders being asset based lending, factoring and invoice discounting which have been in the press recently due to controversial "exit fees" that are paid when a business goes into administration.
Allen & Overy also said that Europe is “far behind” the US in the use of non-bank forms of finance for small businesses. For instance credit card or merchant finance has been available for years in the US.
It warned of a risk that regulations would “dry up” opportunities to bring new sources of capital into play in the SME market, such as pension funds.
Of course in the end it is all about having sufficient working capital. One way that a business can get back working capital, especially if they are insolvent is by entering a company voluntary arrangement. This means that their debts can be spread out over 3-5 years. But here is the best bit; They can write off "upto" 70% of their unsecured debts. However, the business does need to be insolvent and anyone thinking of going down this route needs to take professional advice as they will need the support of their creditors.