Over 99.3% of all private businesses in the UK are small or medium enterprises and growth is a top priority.
Over two thirds (67%) of SMEs say the availability of finance has a significant impact on their business success, according to our 2018 report ‘UK SMEs: Brexit and Beyond’.
Nearly half of SMEs surveyed (43%) received financial support in 2018, highlighting the important role funding plays in supporting small businesses in their journey to scale. It’s a role that won’t be diminished in the face of political and economic upheaval – such as with the turbulence caused by Brexit.
In fact, in a world of uncertainty, some sources of finance can represent a sure path. And it’s not just the monetary aspect of it – receiving financial support is a huge vote of confidence for an organisation. It’s external validation that you will succeed, no matter what the future may bring.
Alternative sources of finance
The commercial credit data sharing scheme was launched as part of the UK Government’s commitment to support SME growth and requires nine leading banks to share credit information on SMEs with other finance providers.
Greater access to this data makes it easier for alternative providers to check the credit worthiness of potential SME business customers. The aim is to stimulate more competition in the SME lending market and increase the range of funding available to businesses who are looking to grow, and to support start-ups seeking initial capital.
Our report uncovered a growing trend for SMEs to seek funding outside of traditional financial institutions. The number of small businesses receiving bank loans dropped by 16% from 2017 to 2018. However, the most popular source of funding is still a business loan from a bank (42%) followed by a personal loan from a friend or family member (27%).
New opportunities are emerging in the form of competitions, crowdfunding, micro-loans and peer-to-peer lending. SMEs are increasingly accessing funding from these alternative sources, with 15% opting to enter competitions to win finance, and 12% choosing to follow the crowdfunding route.
The British Business Bank’s recently published Small Business Finance Report found that the growth of alternatives to bank finance is continuing (although the pace has slowed) and awareness of finance options outside of traditional lending is also increasing.
Is finance enough?
Our survey found that 65% of SMEs believe that the government could do more to support them in non-financial ways.
A quarter (25%) have received non-financial support from banks and insurance companies, while a similar proportion (24%) drew on advice from peers. A further fifth (21%) received non-financial support from local government.
This support can entail a variety of things: advice, mentorship, development programmes, networking, sharing of resources and co-working spaces. And it’s all crucial for SMEs looking to reach the next level.
Understand your own business
Ultimately, when it comes to finance, it’s all about finding the best option for your business.
There’s no question that funding is essential for growth but making the wrong choice can do more harm than good. Before applying for funding, completing a careful examination of your business’ position is a good start to understand how you may be perceived by potential lenders.
Lenders will often look at a business’ credit score so it’s important to understand how your score is determined and ways to improve it.