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While Consumers Flock To Payday Loans, Business Owners Drain Savings Accounts

by Jim ONeil on February 16, 2012

in Payday Loans News

Payday loans have become very popular with UK consumers who are strapped for cash. While private individuals are not shy about using this financing, more business owners are choosing to tap into their personal savings account for business financing.

This trend is concerning because it could leave entrepreneurs without any money for retirement or, even worse, insolvent. Taking a loan during these golden years may not be possible, leaving these individuals with few options.

Research conducted by Bibby Financial Resources revealed that compared to this time last year, more business owners are keeping operations afloat with personal savings. In fact, this has become the number one way to raise needed funds for UK small and medium-sized enterprises (SMEs).

Just four percent of the companies surveyed reported applying for funding through government initiatives. This seems surprising, given that Santander and HSBC recently reported meeting 2011 Project Merlin lending objectives.

Two-thirds of the entrepreneurs surveyed reported that they had not applied for any external funding during the past 12 months. This is a year-over-year increase of 11 percent. During fourth quarter 2011, banks decreased their SME financing due to the higher cost of commercial lending, according to the most recent Trend in Lending survey by the Bank of England.

Despite this, Bibby Executive Director Edward Winterton reported that lack of awareness regarding options is the largest barrier to SMEs when it comes to accessing financing.

While Mr. Winterton sees the need for education of UK business owners regarding funding options and how to access them, he also recognizes that government agencies must understand some of these alternatives. For growth-related SME funding, invoice financing can be appropriate.

Government agencies should know how it works and begin offering it as a commercial financing solution.

Invoice financing bridges the gap in cash flow between issuing invoices and receiving payment. A business receives an immediate injection of cash and an ongoing working capital flow against the value of its outstanding customer invoices. In addition, the provider manages the credit function, collecting invoice payments.

With no more need to perform collection duties themselves, workers have more time to focus on their primary duties.

Mr. Winterton stated that personal savings is not designed to fund business growth and does not represent a sustainable solution. If business owners continue to use it, more could find themselves insolvent in the near future. In addition to invoice financing, businesses should review the loans bank offered to determine if any meet their needs.

When short-term cash is needed in an emergency, no credit check loans are one solution. Applications are often approved on the spot and money is transferred into the bank account within an hour.

Whether they are just starting out or have an established business, entrepreneurs should be prepared for the worst from a financial perspective. Even if they do not need a loan today, they should know what financing is available.

When cash flow becomes an issue, there may not be enough time to research the options and decide which one is best.

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