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Funding Gap for SMEs

A government commissioned report has highlighted the need for alternative business lending to be improved in the UK, forecasting a funding gap of up to £190bn in five years’ time. This demonstrates the on-going failure of the banking sector to supply finance for small businesses, and shows the need for more funding alternatives for UK entrepreneurs and SMEs.

Finance Shortfall

With many businesses gaining confidence and looking to revitalise growth and recruitment plans, the funding gap is likely to become more acute. This is due to the continued unwillingness of banks to lend to small businesses, due to their on-going deleveraging.

The Breedon report predicts a funding shortfall of between £84bn and £194bn over the next five years. It recommends tackling this by setting up a body to bundle up loans to smaller companies, which could then be sold on. This could also attract new money into the sector.

It also looks to encourage big business to assist smaller companies in their supply chain through on time payment of invoices. This is an area where many SMEs struggle, with much of their cash flow tied up in unpaid debt. One way to tackle this is through factoring. This can release funds for the smaller business by paying much of the invoice up front, with the factoring lender gaining the money back when the invoice is paid off.

Need for Change

Business secretary Vince Cable said, “We need to reshape the UK’s financial landscape to better serve the needs of ordinary businesses, helping more companies to find the support they need to start and grow.” In order to do so, there needs to be alternative options for funding opened up to SMEs.

The head of the Federation of Small Businesses, John Walker, echoed this sentiment: “Bold action needs to be taken to ensure a behavioural shift so that small firms know what alternatives to bank finance are available.”

This all adds up to an increased need for change and alternatives in funding the small business sector if growth and recovery is going to be successful.



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