Don’t Fear Debt – Embrace This Growth Opportunity

“Small businesses not taking advantage of current favourable credit conditions to invest in their future, may live to regret their inaction.”

“Being debt free has become an over-riding aim for an increasing number of SMEs,” stated Robert Keep the Principal at Norton Folgate, “However this aversion to taking on any form of borrowing has also had a negative impact on many. This ‘status quo’ attitude to business finance means there is now an increasing reluctance to plan and finance for the future – jeopardising businesses and stifling potential commercial growth.”

“Continued delay means many small businesses will probably ultimately end up paying far more to access vital capital needed to manage day-to-day operations or fund future expansion if they wait until any rate increase is introduced. What’s more they also run the risk of being behind the growth curve, potentially working in more competitive and pro-active commercial markets.”

The Bank of England has held interest rates exceptionally low at 0.5%, the lowest on record, for more than six years. Similarly central banks around the world have held interest rates at emergency levels since the financial and economic crisis. However market expectations are that Threadneedle Street could be the first to start edging them back upwards – and it’s believed that this could start happening as soon as the turn of the year. With little new finance flowing into the SME sector from ‘traditional’ lenders, some organisations still find it hard to access or raise capital. While banks have looked more favourably at extending affordable loans over the past 18 months, the process has become far more formulaic, closing the door on some if the exact criteria required is not met. This has resulted in growth of ‘alternative’ organisations like Norton Folgate who develop innovative and flexible financing packages while working with borrowers to help minimise risk.

“The sector is not overtly regulated, however, the poor decisions of a few have in the past seriously impacted the many,” explains Robert. “Whilst the sector wouldn’t want additional red-tape or restrictive legislation, we collectively need to shake off the perception that we are unsympathetic to businesses. We need to adopt a more pro-active, flexible and conducive attitude towards managing risk and funding business operations and growth in a structured and sustainable way. This in turn will encourage SMEs to run and expand their businesses in a responsible way as it provides them with a level of freedom to achieve this.”

Recent research shows that SMEs are generally feeling more optimistic about their prospects; but small firms are also now waiting an average of 72-days to get invoices paid, putting greater pressure on cash flow. Other factors that will undoubtedly affect business decisions over coming months include recent budget announcements like the rise in the living wage, the mandatory introduction of work place pensions for all employees in small businesses and the investment allowance being slashed from £500,000 to £200,000 at the end of the year.

“Access to appropriate funds is vital if UK-plc wants to continue to flourish,” concludes Robert Keep. “A rise in interest rates is inevitable at some stage, so businesses looking to sustain regular business and grow should regularly re evaluate when, from where and how they could raise finance needed. They should even consider getting a provisional facility in place to capitalise on business opportunities now while loan rates are still low. But it’s not just about access to appropriate funds. The new breed of financial institutions are also proving to be an important source of much needed business advice as they can be the perfect sounding board to help ensure that the business venture you’re embarking upon is grounded in sound commercial strategy. Borrowing is not going to rocket overnight but if small businesses do not take advantage of the current favourable credit in order to invest for their future they may live to regret their inaction.”