Top 5 SME funding fails revealed

The SME funding landscape can be a complex minefield. Clear Funding's Ian Watkinson outlines what business owners should prepare for before deciding on the funding option right for them.

A successful business is built on strong working capital. Access to available cash is essential to enable you to invest in the people, premises and stock that you need to run and grow your business.

But most SMEs will, at some point, find themselves lacking in funds. This is, sadly, because they’ve had to wait a long time for payment, with British SMEs owed a massive £67.4 billion in unpaid invoices.

There are some quick and easy ways to plug these gaps but, with poor payment practices in the UK forcing 50,000 businesses to go under each year, far too many SMEs panic into making poor funding decisions. If you’re in a rush to access money and ease cashflow, here are five things you should avoid:

Giving up control of the customer relationship

A business is built on the strength of its customer relationships. It might be tempting to let a third party take control of these for a quick cash injection, but this is a short-term view and can throw away years of work establishing strong connections. When accessing short-term funds, you should be in control of everything – including your customer contacts.

Paying over the odds on fees

One of the biggest issues with small business financing is the amount of jargon that comes with it. Complicated APRs and terms and conditions can all cover up the true costs. Make sure you know exactly where you stand with a provider which can give you a straight fee.

Wasting too much time on paperwork

In the past, businesses have had to enter endless bureaucracy with the banks in a vain attempt to open or extend a credit facility. It really doesn’t have to be that time-consuming, so look at some alternative options which won’t take you away from the activities which will make a real difference to your business.

Paying to repay early

You wouldn’t think that paying back a loan before the end of its term would be an issue, but too many SMEs are hit with early repayment charges. If you know you will want to settle as soon as possible, make sure you have the option to pay back early at any time, without being charged.

Signing up to long-term contracts

When all you want to do is plug a short-term funding gap, the last thing you need is a lengthy contract or commitment. If unlocking money owed to you in unpaid invoices meets your needs, make sure you can fund one or many invoices whenever you want, without signing up to a long-term agreement.

It’s highly likely that your small business will at some point need quick and easy access to funds to run and grow. By doing some research into alternative finance solutions now, you can avoid complex, time-consuming and confusing funding options later.

Ian Watkinson is chief commercial officer of Clear Funding.

Praseeda Nair

Praseeda Nair

Praseeda was Editor for from 2016 to 2018.

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