UK businesses put the brakes on lending

UK businesses put the brakes on lending

Higher borrowing costs and uncertainty about the UK’s economic future are stirring up the waters of business lending. Throughout 2023, the Bank of England’s agents reported that businesses were not as keen to take out new loans as they had been in previous years. Pricier borrowing and a shaky economic outlook were thought to be the main culprits to the decline in new loans. Interest rates on new loans for small and medium-sized enterprises (SMEs) hit record highs in 2023, according to Bank of England data.

But here’s the twist: despite this reluctance to take on new debt, businesses were still struggling with high working capital needs. Meaning, the cost of running their day-to-day operations continued to drain their cash flow. With the additional costs on staffing, and the public spending less, a lot of businesses were unable to maintain a consistent cash flow.

Cash flow constraint causes.

Steady cash flow is a delicate balancing act. Often the factors that keep cash flow steady, can also tip it of course.

  • Client payment terms can create significant gaps between delivering work and receiving payment. Invoicing terms can range between 30, 60, and 90 days.
  • Investing in growth often requires upfront capital, while income may take time to mature, creating a cash flow bottleneck.
  • Seasonal peaks and troughs in customer demand can lead to inconsistent income.
  • Equipment purchasing, or maintenance. Equipment such as lorries are a costly purchase, but necessary one for haulage companies.
  • Unexpected staffing expenses. Such as temporary staffing being required, or hiring a new employee.

Invoice finance and cash flow.

Unlike traditional loans, whereby the funding received is borrowed, invoice finance provides the business with a pre-payment (typically around 80%) of the value on their unpaid invoices. Once the debt has been collected, the business receives back the remaining balance of the invoice – minus fees.

Invoice financing offers a strategic approach to managing cash flow. By ensuring a consistent influx of funds, it empowers businesses to make strategically plan and safely navigate the challenges presented by growth.