It's not only banks that lend money. Look at the alternatives.
Despite the extensive menu of finance available to businesses, too many are still overly dependent on short-term borrowing.
Businesses need to understand their balance sheets, rather than taking a wild stab at cash-flow forecasts and, when things are tight, just adding a little extra to their overdraft. A short-term fix can add to problems rather than solve them if what is really needed is long-term finance.
Businesses need to go to the right places for finance and they should remember that it is not only banks that lend money. There are other avenues available such as the longer term financing of business angels or venture capital. Both of these offer money and possibly advice in return for an equity stake. The small firms loan guarantee scheme (SFLGS) is another possibility. Under the scheme, the Government guarantees your debt. A further alternative might be to find out whether there are grants and awards available from local authorities, central government and the European Union.
For those needing finance but worried that they don't have any tangible assets, it is worth considering options such as factoring and invoice discounting. Factoring companies will let you draw up to 75% of the value of invoices that have been submitted but not yet paid. Companies need to be aware that factoring companies are less inclined to lend to companies with a history of significantly late payers.
Finally, when you get the finance that is right for you, make sure you understand how the money works. If you are being charged interest, what is it? Is it fixed or variable? Can the money be taken away on demand by the financier or are both parties locked in through the good and bad times? It is not just overdrafts that are repayable on demand, some loans are, too. Always check the small print, even if you think it seems straightforward.
Christine Corner is a partner at chartered accountants Baker Tilly, 0171 413 5100.