There has been much publicity in recent months over an ‘SME lending crisis’. The Breedon Report, published in March 2012 predicted a gap between supply and demand of up to £190bn by 2017.
Britain’s banks have been accused of ‘ruining the country’ as a result of the lack of lending. This has resulted in many business owners turning to alternative sources of funding to support their growth aspirations.
The figures in the Breedon Report suggest that demand for these alternative sources of finance is likely to only increase over coming years. The report suggests that the gap could be bridged in a number of ways. One recommendation given was to introduce a Business Finance Advice Scheme. Another to develop new financial products, with Peer-to-Peer funding platforms specifically mentioned.
It is this changing nature of funding to SMEs which has seen a number of innovative funding platforms carve a niche for themselves in the UK marketplace, supporting SMEs where banks have been reluctant.
Funding niche could bridge the gap
The UK could be considered a global innovator when it comes to alternative finance solutions for SMEs. We have after all seen the likes of Crowdcube, Assetz Capital and Market Invoice catch the eye of many an SME owner seeking finance.
Whilst each of these companies offers something different in respect of the type of finance provided, they offer an SME owner a choice. Finance is not a one size fits all solution, and the variety in the marketplace demonstrates that companies understand that well.
Much criticism has been directed at banks for their apparent reluctance to be flexible when it comes to lending to SMEs. They do after all have credit policies to adhere to. Alternative sources of finance however like those mentioned above should not be seen as the ‘easy’ option. Statistics show that only 1 in 10 applicants to equity funding platform Crowdcube are accepted. Having a robust business plan, and understanding the financial position of your business are critical steps which must be given attention to give the best chance of success in securing funding.
Alternative finance platforms are not only attractive to SME owners. Investors looking to support SMEs could receive a positive return on their money by lending direct to SMEs through the likes of Funding Circle or Market Invoice. Those looking to invest in exchange for equity, through Crowdcube for example, can benefit from the Seed Enterprise Investment Scheme (SEIS), making such investments extremely tax efficient.
There are of course risks associated with supporting SMEs financially, and caution should be exercised by investors and owners alike. Indeed at present there is no legislation to protect investors using such channels. The upside however is that investors will typically be more interested in the success of a business than a bank would necessarily be, and may be able to offer much more by way of support (for example, industry experience and contacts) as well as ‘hard cash’.
It’s (not) all about the money
Whilst it is true that cash is king for SMEs, it’s important to enlist the support of experts to accelerate the success of owner managed businesses.
In addition to new sources of funding there is an abundance of grant support available to those SMEs who are willing to take advantage of it. In addition to the significant value that your accountant, or even bank manager (apart from lending!) can offer, there are a number of government initiatives which are designed to facilitate growth.
The UK’s EU exports increased by 0.6% between August 2012 and 2013, and whilst this may not seem significant, the percentage represents a sterling value of approximately £0.1bn. This is likely to have been supported to some degree by UK Trade and Investment (UKTI). A government funded department whose aim is to ensure the success of UK based businesses looking to trade internationally.
For manufacturing businesses, the BIS funded Manufacturing Advisory Service (MAS) provides business support for companies based in England. Launched in 2002, MAS has supported thousands of manufacturers in England grow their business and achieve success.
In addition to these specific support avenues, other high growth businesses looking to continue with their successful trajectory have options too. The Growth Accelerator programme offers high growth businesses bespoke expert advice and funding to take the business to the next level.
According to statistics from BIS, businesses that seek external advice are 50% more successful than those that don’t. Ambitious SME owners looking for the best chance of success should give serious consideration to the numerous support options that are available within the UK.
If you would like to discuss how your business could benefit from external support or any of the topics covered above, please contact us through the Tectona website or call Mark Nicholls on 07818 407061 or Ronnie Epstein on 07543 275902.