A Growing Shift in SME Funding
The Small Business Finance Markets Report, recently published by the British Business Bank, highlighted a worrying trend. Despite traditional reliance on overdrafts, many SMEs are now turning to business credit cards to manage cash flow. UKBA Advisor Rich Olsen shares his thoughts on what risks this presents to UK businesses.
I’m seeing a growing reliance on businesses depending on credit cards. While there’s no doubt that credit cards can be a useful short-term tool, slipping into longer term reliance can cause major problems.
Why Credit Card Debt Becomes Expensive Quickly
When you are relying on your business credit cards, it’s easy to lose sight of the true cost of what you are borrowing. Before you realise what’s happening, you can become over-burdened with expensive debt. This can restrict future funding options and put even more pressure on your cash flow.
Why Credit Cards Feel Like an Easy Answer
Credit cards are designed to be tempting. They are heavily marketed, often with incentives like cashback which can make them seem like an attractive option. We’re used to seeing credit cards marketed for personal use, but the consequences for business use are not the same. They are an expensive form of borrowing, especially if balances are carried forward over time.
Short-Term Convenience vs Long-Term Pressure
Over reliance on short term finance can lead to escalating costs and reduced funding options in the future.
Why Funding Structure Matters More Than Quick Fixes
Think carefully about your long-term needs, and avoid easy solutions: if it sounds too good to be true, it is.
The priority should always be to step back and look at the overall funding structure, rather than relying on quick-fix or fragmented solutions. Talk to a broker (I’m always available for a confidential conversation) about your needs and plan ahead so that you can avoid expensive, last-minute solutions.
The Importance of Honest Financial Conversations
And if you already have high levels of credit card debt in your business, be honest when we talk. We can help find solutions, but sharing the true picture of your circumstances is vital when it comes to securing you the right solutions.
If you’d like a conversation with Rich about funding solutions for your business, please get in touch.