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Bring together any group of entrepreneurs or small business managers, who are thinking about start up or growth, and the subject of access to finance is likely to feature in the top three of their major issues – if not be number one.
From my experience, the access to finance scene was already changing well ahead of the credit crunch. However, some of the changes in behaviour that we are now witnessing appear to be based more on perception than reality, and perhaps a misunderstanding of the current financial marketplace.
The banks have for some time been moving away from lending to the smallest businesses, but are still able to provide essential early help and advice and, in some cases, financial support. One of the major benefits of the credit crunch could well prove to be a change in bank behaviour – for which there is already some evidence. Banks may again be seen as places where an entrepreneur can seek advice and be pointed in the right direction for business support, mentoring or alternative sources of finance.
But, it’s not only the banks that need to change their behaviour. It seems that small businesses are no longer even approaching the banks, because they assume that since the credit crunch the answer to a request for a loan will be no. All banks are at pains to point out that they are still sanctioning requests at the same level as before, but are receiving less than half the number of enquiries. This is even more worrying if you allow for the fact that many earlier lenders are no longer in the market.
The business founder, friends, family and fools have overtaken the banks at start up level as the major source of finance. This is of concern, as it allows no opportunity for expert advice or guidance with business planning. This will inevitably lead to more failures in the future.
There is, in fact, a wide choice of finance sources for small businesses, ranging from local small business loans schemes that look to help businesses start or grow, through asset finance and invoice discounting to angel investors and equity funds. In all cases the advantage to the entrepreneur might not only be access to funds, but also to the advice and guidance received as the partnership develops.
The recent trend has been to move towards a package of finance to help a business start or grow. It is worth remembering that specialist business funders, whoever they are, need their clients to succeed and grow, and in many cases they can be the introductory source to the next step on the escalator of finance. Business support is an essential part of accessing finance.