Today businesses have the luxury of finding many alternative sources when it comes to financing rather than relying on funding from banks. Businesses today don’t need to rely on banks as much to get the funding they need for any business related expense as these new alternatives have perks that make them more convenient or affordable which is why small lenders are on the rise. With this in mind though you would think it would be easier for small businesses to access capital they need but some studies have showed that it is not the case. According to the International Chamber of Commerce (ICC) Annual Report small businesses today are being held back financially because of lack of finance. The reason for this as put by John Danilovich, secretary general of the ICC is that “the enormous potential of small businesses to create jobs and growth is being held back by increasingly limited access to trade finance,”. Below are five changes taking place in the global economy that is possibly linked to the current challenges that businesses are going through now.
Drop in Commodity Price–
Commodity prices have been falling at a pacing rate since early 2016 which have had a negative impact on the commodity export finance industry. The liquidity has been reduced significantly but the bigger impact have been felt by developing nations such as Brazil whom which larger institutions are being less inclined to do business with as much of the countries revenue stems from commodities. The pricing for bank finances have also changed at all levels.
Basel III is a global set of banking regulations created partly in response to the 2008 banking crisis intended to strengthen global capital and liquidity regulations with the goal of promoting a more resilient banking sector.
Banks now are expected to twice the number of capital which some has seen as a obstacle to small and medium sized enterprises financial gap. This has lead to banks lending less as the cost of finance increases an opening the alternative finance industries plan on taking advantage of this by offering debt and equity finance to these enterprises.
Lowering Interest Rates-
Interest rates have recently been cut by many governments as an incentive for more customer spending and provide more lending opportunities for businesses.
The insurance industry fear that with the decrease in interest rates will yield low returns which is responsible for the capital flows into the insurance markets. Some within the insurance market believe that if there were to reduce the number they have received from these changes interest rates would have to go up or people would have to receive better yields somewhere else to alleviate “excess capacity needs to be pulled out of the market as there is starting to be large losses.”
Growing threat of fraud-
With finance activities comes security risk one of them being the threat of fraud and money laundering which is a big worry considering that $3.6 trillion of goods are financed internationally every year. This coupled with the “complexity around transacting in multiple jurisdictions”and the rules set in place by Basel III further constrains how banks do business today which is why the time frame for small businesses to get financing is growing wider.
Specialist commercial finance brokers have the skill set of knowing how to interact with banks and funders for their clients to which James Sinclair, marketing manager of Trade Finance Global puts it as ” knowing your clients, understanding their on- and off-balance sheet financing, and getting under the skin of working capital flow within the company.”
Since Britain’s departure from the EU data from Beauhurst a British marketing intelligence company shows that the number of equity financed deals have fallen from 2016 by 20%.
UK’s EU referendum has revealed that businesses planning on buying or selling in foreign currencies may be jeopardized under the very erratic foreign exchange rates a finding that was made not too long ago. For now it’s in the best interest of small businesses to consult field experts such as currency brokers about some of the actions that could be taken to protect against the fluctuating values of currency today in the world of business.
Opportunities for alternative finance have grown over the years making it the best time for businesses to take advantage of the offers being given to them. Off course with the current issues in the finance market actually finding the financial support can be a headache sometimes but talking to finance professionals can help you see your options and if you’re a finance professional yourself it can work in the favor of your clientele.
This article was rewritten and completely sourced from http://www.accountingweb.com/practice/clients/how-changes-in-business-funding-impacts-your-clients.