Smaller companies traditionally have had fewer finance choices readily available compared to their larger brethren. Where this comes to the fore is often when payment dates arrive and poor financial planning rears its ugly head. A case in point is the upcoming July 31st deadline for small businesses to pay their self-assessment tax bill. For companies without the cash flow to fund the payment from its stream of receivables and no money saved, a cash crisis hits hard.
Cash Crunch Comes in Many Forms
For small businesses, it doesn’t really matter whether the cash crunch is from a VAT payment that’s come due, a self-assessment tax payment or something else. Simply put, when a business hasn’t set aside the money it needs to pay compulsory costs of doing business, it risks its own solvency as a result. The need to be able to access either a bank loan or alternative funding to cover tax or VAT bills is clearly present.
Poor Trading Is Often Blamed Too
Companies can get caught short when they find their costs rising higher than expected leaving too little money left over to set aside for tax bills. At this point, it’s fair to say that for those months, the business is essentially operating at a loss but not every business recognises this reality. At other times, it is a seasonal or unexpected steep decline in sales that doesn’t allow the company to catch back up on what it should have already set aside towards their bills.
Funding is Available in a Lot of Cases
It may be surprising for businesses to learn that while a start-up with no trading history or a SME that needs a short-term cash injection could lack a great financial balance sheet, they may have other things that are attractive. Some companies produce large sales invoices or have invested into physical assets, either of which indicate the value of the enterprise going forward. In that situation, it becomes easier to secure the funding necessary to manage a cash crunch even when obtaining a traditional unsecured business loan is out of the question.
Increasing Range of Business Lenders
It was once the case that if you needed a business loan, you walked down to your friendly local bank, spoke to the bank manager who you already knew by name, and asked for a loan. Handshake deals were commonplace, and lending was handled personally. Nowadays, the bank manager changes often, you don’t know their name and the fact that you’ve lived in the area all your life counts for naught.
Thankfully, even though venture capital investment is a dream for most entrepreneurs, other lending and investment options like angel investors (Shark Tank, anyone?) and alternative finance companies that specialise in business lending have stepped up to meet the need. The business lending landscape has changed considerably over the last 5-10 years and will likely continue to do so. After all, the very nature of entrepreneurship encourages creative people to find solutions to business opportunities and a gap in business lending certainly qualifies.
Wider Choice of Lenders Gets Companies Out of a Jam
With UK banks choosing to cut their lending by billions to SMEs, the growing availability of alternative funding sources can only be a good thing. Skittish about risk since the economic hit taken in 2008-2009, banks still haven’t regained their footing completely and see SMEs as the highest risk factor on the business finance side of the equation. It remains to be seen whether the increased competition will spur traditional UK banks to up their game or lose profitability in their small business lending departments entirely.
For small businesses, it’s not always the end of the road when they have a tax bill that’s come due and there’s too little money in the bank to pay it and keep on trading. Flexible finance companies who are better able to assess risk are cropping up in greater numbers and entrepreneurs are surely benefiting from the increasing options available to them.