Todd Davison, Director at Purbeck Insurance Services said: “Cash flow is the life blood of any small business.  But for a whole variety of reasons, not least the current economic uncertainty, an SME business owner may find themselves looking at unpaid customer invoices, bills from suppliers and wage rolls, and wonder where the money is going to come from.”

“Small businesses are owed billions in late payment and with major brands such as Jamie’s Italian going to the wall, whole supply chains are affected and end up borrowing to fill the gap while they wait to get paid. However, using finance to improve cashflow can be a double-edged sword.  While turning to a finance provider will relieve the immediate stress of an uncertain cashflow, we believe it would be prudent for the business to take the time and review its financial situation as a whole. In doing so, the owner may find some changes can reduce the need for, or at least the amount of, additional finance.”

Changes may for instance, involve a restructuring of the finances, reviewing credit terms to suppliers, outsourcing the late payment debt, better managing stock control or looking at other additional sources of income such as renting out office or warehouse space.

As well as improving cashflow, the survey found acquiring new equipment (27% respondents) was high on the list for obtaining additional finance followed by supporting a business acquisition (10%), moving premises (9%), R&D (9%), and increasing headcount (7%).

“While many businesses are using finance to keep their business operating, it is heartening to see around the same number are using it to acquire new equipment, suggesting many businesses are flourishing and are possibly looking to expand,” continues Todd Davison.

“In a lot of circumstances, the only way for a business to raise additional finance is in the form of a Personal Guarantee backed loan taken out by the owners or directors of the business. If putting personal assets such as the family home or life savings on the line for the business really is the only way to raise the finance, directors need to look at ways they can protect those assets; such as through Personal Guarantee insurance.”

Personal Guarantee Insurance offers protection against the risk that the Guarantee is called by a lender and will offset any outstanding obligations called in under a Personal Guarantee. The level of cover is based on a fixed percentage of the Personal Guarantee the company director wishes to insure and this is dependent on whether the corresponding finance facility is secured or unsecured. 

[i] 500 SMEs surveyed by Censuswide, March 2019