Companies look to private capital funds

The squeeze on bank funding and ability to raise cash has hit a number of smaller companies since the credit crisis began.

Recent announcements from a number of private equity houses, which are finding it hard to realise investments and raise cash, have also added to the funding maelstrom.

Michael Derks, chief investment officer at Arch Financial Products, said private finance funds could be the only way for some companies to continue operating in the current environment.

He said: "Traditional high street lenders are not really fulfilling their normal task of lending to small and medium-sized businesses. Borrowers are constantly looking at non-traditional lenders to provide them with much-needed funding."

Derks said the search for alternative sources of funding was fuelling an increase in interest in private finance funds.

"These are very good times for private finance strategies in that we’re able to get good deals and ask for decent interest rates at a time when there isn’t much competition."

He said the government had been unsuccessful in getting funding to smaller businesses in need of help because of problems in the banking sector.

He added: "What the government’s package is trying to do is provide high street lenders with greater ability to start lending again. But if there are a lot of problems already with banks’ balance sheets, then that will take some time to rectify."

David Dooks, statistics director at the British Bankers’ Association, said although small business lending by banks had risen in recent months, it was still lower than 2008 monthly levels.

"There have been net rises in term lending to small businesses each month since last Autumn, albeit at levels below last year’s monthly average, reflecting subdued business investment in the economic downturn."