Securing funding can be a challenging issue for many small and medium-sized firms (SMEs) that are driving innovation and creating new jobs.
For SME Access To Finance UK can sometimes seem like a kafkaesque maze of dead-ends and corridors.
At Pegasus, we have been navigating these corridors for many years, so we know the correct paths to be taking for you on whatever stage of your growth journey you are at.
SMEs are the backbone of the UK economy, so it should be no surprise that there are many options available on the market, ranging from conventional bank loans to peer-to-peer lending.
We’ll explore the different financing options that you need to know about, and together we can develop SME access to finance UK!
SME Financing: Knowing your Why!
Let’s establish the “why” before delving into the “how.” Ultimately SMEs’ finances are the fuel that keeps the UK’s business engine running.
Why is funding for SMEs so important? First of all, in the most part, SMEs cannot function, grow, or innovate without outside funding, because they lack the financial reserves of larger firms. Second, whether a bright idea becomes a successful company, a new product line, or it fades into silence depends on the availability of capital.
SME financing permits:
- Growth and expansion
- Investing in new technology and equipment
- Investing in Research and Development
- Taking care of operational costs and smooth financial flow
Therefore, getting SME financing is a crucial step in ensuring your company’s longevity and success.
Major Challenges Faced by SMEs While Securing Funding
For SME Access to Finance UK is not as easy or as simple as it could be. They face many challenges. Some of them are given below:
- Banks often refuse to lend to small businesses because of their strict lending criteria. These are especially for those SMEs that don’t have a long credit history or significant collateral.
- High-street banks are preferring to lend to larger corporations simply because of their risk-based criteria – so what may be the obvious choice may also be the very wrong one.
- Due to cash flow hurdles, SMEs can sometimes fail to meet their repayment obligations, which ultimately lowers their credit scores. Whilst not the be-all and end-all, these scores show lenders that they are a solid financial entity. A lower score will decrease their chances of having their funding application granted.
- Due to a lack of stable financial performance, SMEs may find it more difficult to showcase their credit rating and convince lenders that they are able to repay loans.
- Smaller companies may find it difficult to bring in investors and obtain the capital they require to expand and successfully compete with larger, higher-profile, entities.
These can be just some of the challenges faced by small and medium enterprises while accessing finance in the UK.
10 Ways to Secure Financing for SMEs
On a more positive note, let’s take a look at some of the ways around and through these challenges. These strategies and tactics come from our many years of experience working with UK SMEs to access funding.
We need to acknowledge that securing funding takes careful planning and a solid strategy; it doesn’t just happen:
1. Make a solid business plan to convince lenders, investors, and banks about the viability of your business. A strong business plan will show possible lenders that you are a reliable firm capable of repaying any funding.
2. Justify your intended use for the funding and calculate the exact amount you require, whether it’s for working capital, equipment acquisition, growth, or other purposes.
3. Look into your choices for finance, including trade credits, government-backed loans, venture capitalists, bank loans, and crowdsourcing.
4. Think about consulting with accountants, business consultants, or financial advisors who specialise in assisting SME access to Finance UK.
5. You can reach out to several initiatives from the UK government that can help small and medium-sized businesses secure funding. For example, start-up loans backed by the UK govt. These programmes may be able to offer preferential terms for financing access
6. Ensure you possess all the required data, credit reports, and proof for your application.
7. You may try invoice finance, which helps turn overdue bills into instant cash. That can be a lifesaver for SMEs that are facing immediate cash flow challenges.
8. Keep accurate financial documentation and establish a track record of responsible management of funds.
9. Negotiate to get the best terms and interest rates for your company, if at all possible. Make your pitch unique to each type of lender or investor, emphasising how their backing will enable you to meet your goals as a company.
10. If you are initially rejected, it’s important to understand why it was that answer, whether it was commercial, credit related, or a macro-economic challenge. Engaging with expert funding advisors can help open other pathways to obtaining the financing your UK SME business needs.
These are some of the options available to secure financing for SMEs in the UK.
The Bottom Line
In this blog, we’ve looked at the major challenges faced by SMEs in the UK while securing funding and some ways to overcome them. If you are still facing a finance-related issue, then reach out to Pegasus Funding, we work with businesses of all sizes and in all sectors for finance-related services. Our impartial and bespoke service assists businesses with their SME Access to Finance UK. Contact us today and let’s start your funding journey together!