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Business Loan Costs Poised To Increase

by Jim ONeil on October 19, 2011

in business loans

Despite business lending targets established by the government, more difficult lending conditions will lead the cost of credit to increase, reported small business funding source Interface Financial Group (IFG). The company operates in the UK and several other countries. Services include providing businesses with short-term financial resources like debtor, construction, and invoice factoring.

According to the Bank of England, the cost of credit for small businesses will increase during the remainder of this year. At the same time, the bank expects that demand for business loans will decline. A new approach being taken by some banks is to view credit risk by industry sector rather than on a company-by-company basis. Major business lenders claim this has always been standard practice.

The uncertainty that surrounds growth prospects is leading to industry differentiation in terms of risk during the current economic climate, said spokespeople for the Bank. IFG Chief Operating Officer Paul Barnsley commented that the Bank report was discouraging, making it clear that small businesses need assistance with funding. Customers of alternative funding do not experience the same issues as those who pursue traditional financing, he stated.

The view that invoice factoring or discounting is a last resort is an outdated, incorrect one, commented Mr. Barnsley. Properly used, factoring can assist businesses with growth and funders offer a great deal of flexibility. Small businesses obtaining new traditional loans during the summer were forced to accept stricter terms and collateral requirements. This trend is expected to increase during the fourth quarter.

Based on this situation, some experts doubt that commercial loans bank issued will meet lending targets established by the Coalition Project Merlin agreement. Mr. Barnsley recommended that businesses explore the invoice financing market for additional lending options. Entities operating in this arena are quite welcoming and provide a range of funding solutions.

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