Nearly half of all SMEs in the UK believe that British businesses are missing out on growth opportunities because of a reluctance to borrow. And that the economy is being stifled as a result.
Recent research, carried out by BDRC Continental, says that many SMEs have reached a crossroads when it comes to funding. It appears that although SMEs know that they need a cash injection to take their business to the next level – or just to survive, there is a nagging doubt about turning to external funders.
So why is there a reluctance to borrow? And what factors are preventing small businesses from seeking the funding they need to grow?
One of the main reasons, the survey found, is a belief that external funding results in a loss of independence (47%). And, if you are considering equity as your funding route of choice, then this may well be true. However, with so many other types of funding available, it doesn’t always have to be about a loss of independence or control. You simply need to do your research into the types of funding options that are best suited to you.
Undeniably, borrowing can be a burden. In the same survey, over 40% felt that seeking external funding caused too many worries and 37% said it was too risky in the current economic climate. But should this really put them off? When you consider that the majority of businesses believe that they have a good understanding of the finance options available to them and their confidence in ultimately securing the finance is high, it would seem the reluctance is more down to a ‘fear of failure’ than their lack of investment readiness.
The survey shows that, in general, SMEs understand that securing finance can support their development plans, with 27% of borrowing SMEs placing external funding as a key reason for their business growth. In fact, over a fifth of those that have borrowed recently even admitted that, without external funding, they would not be in operation today. Surely this evidence suggests that external funding can have a positive impact on the lifespan of an SME? They just need to believe it.
So why are small businesses afraid to borrow?
Is it the years of economic instability? The ongoing Brexit hype? The general air of political uncertainty?
Whatever it may be, we are in danger of becoming a risk averse nation. Convincing small businesses to secure finance when they need it the most is the biggest challenge we need to overcome.
The problem is not necessarily with supply anymore; there is an abundance of lenders and lending options out there. What businesses actually need is the appropriate support and guidance to borrow with confidence and growth in mind.
The overarching message is clear; if in doubt, seek assistance. Approach reputable FCA regulated intermediaries, who can provide tailored solutions from a range of funding sources. Not only will this put the balance of power back in the SMEs’ control – giving them the opportunity to pitch lenders against each other – but it also offers the benefit of an experienced third party to remove the worry and mitigate the risks involved.