Business Finance News From United Kapital

UK's SMEs Key To Future Business Innovation

Friday 22nd of July 2011

Will Hutton's paper, submitted to the Independent Banking Commission, has made various claims that the UK's financial market is destroying valuable SMEs up and down the country.

The claims, which were submitted recently, says that SMEs are the future of jobs for our citizens as well as the greatest source of innovation which the UK has to offer.

In the paper he goes on to say how the financial banking system should be encouraging lending so that SMEs can grow and develop, becoming successful businesses. However, on the contrary, banks are making it harder for the companies to borrow and this could lead to the company folding altogether under the financial pressure which the recession has left in its wake.

The paper states, "The UK's small businesses are the country's main source of innovation and the main route to strengthening the recovery. As experience has shown, this recovery will only happen with the help of the banks when they stop focusing on their balance sheets and start to see small businesses as a good investment."

The paper continues, "These problems are not being solved by market forces acting alone. The market does not self-correct because the scale of current banking creates strong incentives for conformity to a single business model and substantial barriers to entry for new banks offering better services to SMEs. The subsidies given to large highly leveraged banks through implicit government guarantees - amounting to more than £100bn in 2009 - further constrains entry. In short, dissatisfied customers have nowhere else to go."

However, there is one alternative business financing method which many SMEs are recognizing as one of the most flexible, easy to gain and unique ways of borrowing money that there is, a merchant cash advance. Unlike traditional loans, this lending involves a repayment method based on credit or debit card transactions, whereby a fixed percentage of the sale is returned to the provider as repayment of the cash, until the advance is settled completely.

In reality it isn't a "loan" but an "advance" on future earnings. The amount you borrow is dependant on various factors but could be anything up to £150,000 which means that buying a new property or extending stock range is very achievable with the advance. This enables many SMEs to progress and expand successfully without the worry of having no financial backing.