Asset finance is often the most accessible and cost effective option for SMEs to secure the funding they need for their business. However it appears that many companies are still using more short term, and often more expensive, forms of borrowing.
The Finance & Leasing Association’s (FLA) recent survey of SMEs has revealed that 43% use company credit cards as their main source of funding, while 37% use overdraft facilities and 34% use bank loans.
While it’s important for each individual company to select the type of finance that works best for their current situation and future goals, the risk of fluctuating interest payments and expensive rates of credit should introduce a note of caution into any decisions to opt for traditional credit cards and overdrafts as a primary funding source.
The problem is that these lines of credit are perceived as accessible, affordable and available on demand, encouraging businesses to select the ‘easy’ option, rather than the right one.
The FLA survey illustrated some of the common misconceptions that are acting as hurdles to increased use of asset finance within the SME market. Interestingly, these hurdles vary depending on the size of the SME.
For larger SMEs, the main obstacle appears to be the cost of asset finance and the perceived risk to their business, so it’s essential that advisors outline the real cost comparison between asset finance and traditional forms of borrowing. It’s also important that SMEs work with asset finance specialists that will assess their needs and assets holistically, ensuring that they release cash from the business strategically and affordably.
For smaller SMEs, the main obstacle is a lack of information and understanding. These businesses are less likely to seek advice from a professional advisor and will therefore opt for credit card or overdraft lending as a default setting.
The important message in all of this is that the financial sector must understand the factors affecting SMEs’ decision making in order to better advise them. That understanding must also extend to professionals that influence SMEs, including accountants, brokers and solicitors. Only by maintaining an open and honest dialogue about the range of funding options available can the sector educate the marketplace and help companies grow.
For more information on how asset finance can help you, call us today on 0333 323 7800.