Business Funding: The Year Ahead

Business owners looking for funding in 2023 will have to 'box clever'. There will be various challenges but funding should still be available.

While funding will be available, lenders are likely to tighten credit policies and be more cautious in their approach. The percentage they will lend against assets is likely to reduce, certainly from the historic peaks. This will be compounded by reduced valuations on assets such as machinery and property.

Personal guarantees are going to be more of a feature and will come in for more scrutiny.

Affordability testing will be more robust and forecasts will come under increased analysis and testing.

The unsecured loan market as we have known it has almost disappeared. Secured loans are likely to be more popular.

Business overdrafts seem to be confined to history like knights from the round table.

What should business owners be doing?

My recommendation would be to fully understand your options. Look beyond your bank and any existing facilities you may have in place. Sweat what security you have available.

Understand your requirement in the here and now but also plan ahead for what you may require. Try to make sure that any facilities you put in place are future proof.

Lenders will want to lend against assets. Have a clear picture of what those assets are. Ensure that your asset register is up to date and is as detailed as possible. Make sure that your aged debtors and stock reports are accurate and up to date. If your aged debtors has overdue debt on it, tidy it up by focussing on credit control. It will generate cash and will make your business look more fundable.

Shop around. Lenders will differ in terms of:

• pricing - the difference between the cheapest and the most expensive can be dramatic
• funding generated - lenders will want to increase security and limit exposure. Make sure you are getting the right amount of funding against the assets you are offering as security
• Security - some lenders will want more than others. Don't offer up personal guarantees, charges over other assets and charges on your home without understanding what else is out there.

Once you understand your options there is likely to be a trade off between the three variables above. Once you understand that trade off, you can make an informed decision.

Personally, I think that demand for funding will come from a shortage of working capital for many businesses. This will be caused by restricted supplier credit, slower paying customers, disrupted supply chains and banks looking to limit their exposure.

If you want to discuss what options are open to your business please get in touch.