The business funding landscape


By Sharon Wiltshire, UK Commercial Director

02 Sep 2019

Ten years ago, the UK was in the tail end of recession because, in part, companies of all shapes and sizes couldn’t get the funding they needed to grow. Since then unprecedented intervention from The Bank of England has created an era of easy credit. Most of this credit has flowed into financial services and unfortunately less has flowed into the hands of UK SMEs.

The fact is that the level of bank lending to SMEs remains lower than before the financial crisis[1]In our Q2 2019 SME Confidence Tracker one in ten (10%) SMEs said that Banks were more willing to lend to them whilst a fifth (21%) said Banks are less willing to lend to them, a third (32%) said willingness had remained the same.

Open Banking is one initiative the Government created to try to address this, but research by YouGov shows that data sharing, which the scheme relies on, is not very popular. Last year just 6% of UK adults said they would be comfortable sharing their financial data with organisations other than their main bank[2].

Our Q2 2019 research provides insight into the complex picture of SME funding. There has been a six percent jump in SMEs using external finance since Q1 2019. The bad news is that four in ten (40%) of those who needed external finance have turned to credit cards.

Using unsecured borrowing can mean SMEs pay a higher financial or even personal cost to access this additional capital. Whilst a credit card or an increase in an overdraft may provide a temporary boost to businesses, it does not offer the same benefits that secured forms of borrowing do.

Funding solution to free up working capital

Earlier this year, BFS provided Liverpool based specialist print finisher Thomas Loughlin with an invoice finance facility to free up additional working capital that was previously tied up with overseas customers in Ireland and the USA. This type of funding grows in line with an SME sales’ ledger rather than providing a single spike in cash flow. 

This funding is one form of borrowing that is vital for fuelling sustainable investment. Until this quarter, SMEs had been reducing their spend since Q4 2017 when 80% were investing in their businesses. As a result, the data from this quarter shows that historic levels of SMEs investing is increasing, as 69% prepare to invest in Q3.

The long-term sustainability of this future investment will depend on whether SMEs build their investment plans on a secure footing or borrow from unsecured sources. The task for the industry is to support them as best we can.

[1] UK Finance research from evidence given to The House of Commons inquiry into SME Finance

[2] YouGov Three quarters of Britons haven’t heard of open banking, August 2018

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