Anil Stocker, Co-Founder of MarketInvoice comments “90 per cent of the business banking market is dominated by just 5 high street banks. A lack of choice in financial products and a monopoly on capital distribution has stifled UK companies’ growth plans, many of which are burdened with unreasonable costs of finance.

With banks constantly missing lending targets, business owners are looking into alternative sources of finance to complement any existing banking arrangements.

At present the government’s attempts to push for banks to lend more under Project Merlin and to effectively distribute the liquidity injected by the treasury have disappointed in providing adequate finance for small and medium-sized enterprises (SMEs).

Nevertheless it is not necessarily productive to simply blame the banks. Fresh uncertainty over both the US economy and Eurozone’s abilities to tackle large deficits and a growing sovereign debt crisis has affected bank performance. Combined with the number of debt instruments on commercial banks’ balance sheets and the impending requirement under the Basel III agreement for banks to raise their capital reserves by between 9 and 10 per cent, some banks simply do not have the capacity to lend any more at present.

With traditional sources of finance more restricted, private high net worth individuals, who are currently achieving no return from deposits in banks, and institutional investors who are seeking returns on their capital can act as a complementary source of finance.

MarketInvoice effectively taps into these very significant pools of capital to channel non-bank funds to small and medium-sized companies.

Every year, UK companies take advantage of invoice financing on over £220Bn of commercial invoices through arrangements with banks and factoring companies.

At any time, £13bn worth is outstanding. At MarketInvoice we have trading statistics that show FTSE 250 companies (high street and household brands) paying SMEs as late as 90 to 120 days. Already under strain due to reduced bank lending, these SMEs are facing serious cash flow difficulties.

Traditional factoring and invoice finance can be ill-suited to these companies as they often require an entire sales ledger flowing through a factor. In addition, factors necessitate stringent criteria and often exclude certain types of invoice, such as export invoices, while typically requiring ongoing service fees and collateral requirements such as personal guarantees or all asset debentures.

MarketInvoice allows SMEs to get cash upfront on their invoices by auctioning them on an online marketplace. High net worth individuals and institutional investors place bids and advance cash to these companies in exchange for a small discount fee, which is driven down through a competitive auction process.

With no ongoing service fees, no requirement for collateral such as personal guarantees and the freedom to choose when and how often they desire to auction an invoice, it has seen quick take up as a credible alternative to traditional capital sources.

Today’s funding landscape confirms that it is unsustainable to rely solely on banks to provide the capital to fund small and medium-sized companies. MarketInvoice can act as a complement to traditional bank facilities while adding much needed competition to the finance sector.

With investors increasingly looking for alternative asset classes to invest in, it is time to push for greater innovation in financial services. Rather than relying on Government to legislate, UK entrepreneurs are trying to disrupt and level the playing field for access to capital”

Article contributed by MarketInvoice