The pound continues to remain volatile against the euro and US dollar in the run up to Britain’s EU referendum tomorrow, a lower confidence in the euro, and the US presidential elections – what does all this mean for business?
Businesses operating in cross-border markets (such as global importers and exporters) continue to face challenges around weak oil and gas prices, volatile currency pairs and thin margins. Nonetheless, the financing of national and international trade is still crucial in the supply chain.
How can businesses get funding in today’s economic environment?
According to a recent study from Amicus, 16% of 400 SMEs surveyed have been rejected from funding from the retail banks, up from 11% in 2015. The story still remains that regulators are forcing banks to reduce their loan books and ring fence their investment banking from their retail business, as well as taking a more risk averse approach to lending, which means less money to lend, a lower risk appetite to lend to slightly smaller businesses, and a lengthy due diligence procedure (and that’s just to get an offer on the table).
Understandably from the bank, this strategy may not be aligned with the needs of an SME to receive debt funding to boost working capital on orders that they know their end clients will pay, or release cash from invoices which will be paid on 30-90 day terms.
Some non-bank funders and alternative financiers exist just to solve this. When a trade or invoice finance solution from an alternative lender is placed with a currency solution to hedge FX risk, for example, an SME could see a quick working capital solution which would enable them to pay suppliers, their own staff / purchase of goods, and not worry about bridging the funding gap whilst waiting to get paid.
The beauty of agile funders in the marketplace, is that they can reduce overheads by automating processes, securitise assets such as future payments, invoices, assets or goods being shipped, and respond to the client’s needs in a way best suited to them (I.e., by only charging interest on what they borrow, rather than a fixed borrowing amount).
To read about the different types of invoice finance, read Trade Finance Global’s extensive invoice finance guide and infographic.