Overdrafts v’s alternative finance

17 November 2015

Traditionally, finance arrangements for SME’s have been delivered as overdrafts and/or loans, where a level of funding is drawdown or used as extended working capital.

Alternatives such as ‘factoring’ have historically been stigmatised as a sign of poor financial strength and failing management – aka an action of last resort, however this perception, despite being still in the public domain, is now being altered by the growth of alternative finance.

Alternative finance offers many options such as:

  • Bespoke invoice discounting – where advances of 50-80 % of trade debtors can be achieved, but control of debt remains internal.
  • Single invoice finance – where a large contract is won, such invoices can be financed individually.
  • Complete factoring solution – where control of your debtors is passed completely to a finance provider.

Most businesses are comfortable with asset finance and have used such a facility numerous times, however, many are still sceptical with fears of such arrangements. One such arrangement that is common and not feared is asset finance. A debtor is by definition an asset so could be referred to as a form of asset finance!

For further information on this blog post, please contact our corporate finance specialist Tom O’Brien.