Many small businesses are caught in the single supplier trap, relying solely on one funding supplier – often a big bank. This is a risky position to be in, and smart, modern businesses should know better. Here’s why:
Single supplier risk: Relying on one funding supplier means your financial stability is at the mercy of their decisions. If the bank decides your industry is not in favour, they can change the rules, reduce, or even close your facility. This can leave your business vulnerable and without crucial funding.
All monies clauses: Most bank finance contracts include an “all monies” clause – which means they can call on ANY and ALL security on ANY loan you have with them.
Limited product options: The best finance tool for your business might not be the best for your bank. You may really need an unsecured overdraft – where you only pay interest on what you use. However, your bank might not offer this facility – just a term loan where you pay interest, regardless.
How can you diversify you business financing?
Two key risk diversification strategies are:
Spread your risk: Diversifying your funding sources ensures that you have others to fall back on if one avenue closes. It’s a proactive strategy that smart businesses use to maintain stability and growth.
Explore smarter finance tools: Look into trade finance and debtor finance. These products allow you to leverage your outstanding invoices or recent purchases to access funds. Additionally, consider products like an unsecured overdraft, which can provide immediate liquidity without risking your personal assets.
Don’t put all your financial eggs in one basket. Explore the full range of business financing options available today.
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