Sme’s are more and more finding new sources of funding, particularly Invoice finance. This comes in the wake of banks continuing to withdraw credit from the SME sector.
Last year Invoice finance companies reported record growth from small companies looking for access to additional loan facilities. The banking sector’s gap has opened up significant opportunities for niche lenders which lend working capital against a borrower’s sales ledger.
A spokesperson for one institution, Close Invoice Finance said;
“Many SME’s out there meet the criteria of good quality companies. They just can’t get finance and it’s causing problems for many of these establishments.”
A recent report from the Credit Review Office revealed that both Bank of Ireland and AIB were unlikely to meet the €3 billion lending target set down for small business lending. There are conflicting reports about who is to blame for this situation with invoice discount houses saying that it’s down to a lack of demand while the ISME (Irish Small & Medium Enterprises Association) has consistently said that borrowers were in effect being discouraged from making applications by the banks themselves.
In most cases it appears that companies are using their own debtor book to generate funds to pay down other credit and try and improve margins. This is a risky strategy in today’s economic climate because Invoice discounting really only works if sales are at least stable or growing.
There are seven invoice finance providers in Ireland, some are branches of UK lenders, with one or two indigenous companies such as Celtic Invoice Discounting, whilst the rest are add-ons provided by Irish clearing banks.
Another invoice discount company spokesman for Bibby Financial stated that “demand is up 85 per cent since the Crash. However unlike in the UK it’s a very under-utilised market here.”