The Bank of England new Trends in Lending report has underlined the importance of invoice finance as small business lending from major banks and building societies remains hard to secure.

According to the new Bank of England publication, the latest figures show a £2.8 billion fall in business lending for the year to November 2012, with small businesses facing the most challenging conditions. While lending to larger firms is improving, in part due to the Funding for Lending scheme, small businesses are still struggling to secure credit.

According to the report, demand for small business credit fell in the last quarter of 2012, a finding that will fuel the position of major lenders that SME funding is available but not being accessed. Of course, the counter argument is that the terms and conditions attached to SME lending are deeply unfavourable for small businesses, hence the lack of demand.

So, it would seem that the old stalemate will continue, in particular as the Bank of England reports that “major UK lenders expect their net lending to SMEs to increase slightly in 2013”. Such a comment doesn’t suggest that we are going to witness a change in SME lending conditions akin to that which we are seeing in terms of mortgage lending.

So, what do small businesses do next? The British Chambers of Commerce has reiterated its call for a British Business Bank and a fundamental change in business finance, but the timescale attached to this project means that these companies will be stuck in the same old rut, at least in terms of traditional SME lending services, in 2013.

However, this lending gap is being filled by alternative finance, a sector whose continued growth is being led by selective invoice discounting. Using these services, often in tandem with bank and building society SME lending facilities, is providing small businesses with a financial lifeline. In light of the figures and findings of the new Bank of England report, selective invoice discounting will be needed more than ever in 2013.

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