New research by merchant bank Close Brothers has found that 60% of small and medium businesses struggle to access the funding they need. 34% felt the capital available wasn’t enough to pay for what they needed, and 24% think repayment was too costly.
When businesses can’t access the finance they need and fail to grow, it can have a much bigger impact on the British economy as a whole. The UK’s 5.4 million small businesses make up “47% of private sector turnover” and hire 60% of employees in the private sector, so their ability to grow benefits our pockets, our services, and our high street. October 2015 was the first time lending to small businesses increased since the 2008 recession, but there’s still a lot more to be done.
Small Businesses Struggle to Plan for the Future
According to Close Brothers’ research, 90% know how to access the finance they need, but 64% only plan their finances a year in advance. Only 28% of SMEs plan for more than 12 months ahead, and 8% don’t plan for the future at all.
Micro SMEs (1-9 employees) are planning for 7-12 months ahead, while small businesses (10-49 employees) only plan up to 6 months ahead on average. 1 in 9 SMEs (50-99 employees) plan for 18 months and beyond.
With improved access to funding, businesses in all sectors will have more options and be able to plan their activities and growth in much more detail.
Difficulty Accessing Financial Advice
38% of SME owners would “go to high street banks for information and advice”, but only 19% are satisfied with what their bank gives them.
35% of small businesses don’t feel high street banks understand their circumstances and needs, followed by just under 25% of micro businesses and SMEs, and under 20% of larger medium businesses. There’s no correlation between size and a positive experience with financial advice from traditional sources, but it’s clearly a problem felt by small businesses more than any other group.
Why SMEs are Rejected for Capital
The main reason SMEs are refused finance is related to cash flow – 27% have been turned down for this reason. 23% were rejected because the bank they chose wasn’t lending to any small businesses at all, 20% because they didn’t have enough capital, and 19% because their business plan wasn’t convincing enough. In 12% of cases, the lenders didn’t understand the sector enough to make a judgment.
For first-time borrowers specifically, the rejection rate is around 50% according to government figures from 2014. A third of these first-time borrowers abandoned their search for funding and didn’t approach alternative lenders.
Capify offer alternative finance options for small businesses trading for at least 12 months. The alternative business loan can help businesses raise 75% of their average monthly turnover, providing they process over £10,000 each month. Repayment is in small, manageable daily amounts. Get aGet A Quote