A new survey by the British Chambers of Commerce and Bibby Financial Services has revealed that while almost half of businesses applied for finance in the past year, awareness of alternative funding options remains low amongst UK firms.
The survey of more than 1,000 businesses, undertaken before the EU referendum, highlighted a significantly lower awareness of alternative and equity finance products – such as peer-to-peer funding and trade finance – compared with familiarity with traditional loans and overdrafts. Firms were most familiar with bank overdraft facilities (92.8%) and least familiar with mezzanine finance (18.8%).
Findings show that almost half of businesses (47.7%) applied for finance in the past 12 months. Of those firms, business growth (42%) was the main reason for seeking finance, followed by improving cash flow (26%) and funding for start-ups (14%).
However, only 21% of firms surveyed reported that the availability of finance had declined over the past three years, while 23% said that it had improved in that period.
The key findings from the survey are:
- 47.7% of firms have applied for finance in the past 12 months
- The four types of lending firms were most familiar with were bank overdrafts (92.8%), bank loans (88.2%), commercial credit cards (86.1%) and leasing/hire purchase facilities (86.0%)
- The four types of lending firms were least familiar with were mezzanine finance (18.8%), angel finance (38.9%), peer-to-peer funding (41.6%) and trade finance (46.1%)
- Of the firms that were successful in securing finance but rejected the terms offered, 54% did so because the interest rate offered was too high, and 39% said the collateral required was too high
Dr Adam Marshall, Acting Director General of the British Chambers of Commerce, said:
“At some point in the life cycle of a business, access to finance becomes critical to supporting expansion and export plans. The low appetite for finance revealed in this survey, which was undertaken before the EU referendum, is concerning because it implies that many firms were treading water and putting off expansion plans well before the high-profile campaign we’ve seen in recent months.
“These results demonstrate the importance of supporting business confidence, so that businesses feel comfortable making growth plans and seeking finance to deliver them.
“At a time of transition for the economy, government help can play an important role. So there is work to be done to raise awareness among businesses of schemes such as the British Business Bank, which was set up by the government specifically to make finance available to firms via banks and alternative lenders to promote business growth. The clear message needs to be that growth funding is available.”
David Postings, Global Chief Executive of Bibby Financial Services, said:
“It’s clear that on the lead up to the EU referendum many UK businesses were not spreading their gazes in relation to securing finance. Traditional sources of funding still seem to be the first port of call for many SMEs, but there are a growing range of options available and it’s important that businesses consider forms of finance that fit their own requirements.
“At a time of change for the UK, there’s a fantastic opportunity for SMEs to achieve growth by looking beyond traditional channels for specialist finance. Sources of funding such as invoice finance grow in line with a business’s sales ledger and this means that SMEs don’t have to take-on debt. Furthermore, a weaker pound provides opportunities for businesses selling overseas so export and trade finance may be better suited than loans or overdrafts.
“There have been helpful proposals to improve access to business finance, such as the Government’s bank referral scheme as part of the Small Business, Enterprise & Employment Act. However, it will take some time for this to translate into new applications once launched. In the meantime business groups and funders can play a big part in raising awareness of the range of options available to businesses.”