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How do SMEs finance growth?

Can your business get access to the funds it needs for growth? With banks keeping a tight rein on the purse strings, accessing small business finance within the UK market is harder than ever. As we know, there can be no growth without cash – so where do small businesses get this vital ingredient? According to a new survey, businesses are starting to adapt to funding models outside the banks, showing that getting a cash flow injection is all about knowing who to go to.

Friends and family were a popular option for investment for many of the 5,000 SMEs interviewed; 20% went to people they knew for start up capital. This wasn’t for multi-million pound investment, obviously – 75% of business owners managed to get up and running with working capital of less than £2,000.

Personal savings were another popular option, with the majority (76%) of small business owners using their own nest-eggs as working capital. 13% also used redundancy payments in order to get the cash they needed to get off the ground in a new business venture.

One of the worrying responses was that only 3% of businesses were able to secure a bank loan to get their business going. This just goes to highlight the unwillingness of the banks to finance any business they deem remotely ‘risky’ – and start ups most often fall neatly into this category. While limiting the banks’ risk is of course important, this attitude is starting to strangle small business innovation and growth.

Invoice finance is one of the alternative finance options that small businesses should be taking advantage of. This means that personal savings or friends and family won’t be needed to keep a business going – as soon as your business has sales invoices, you can start factoring. 49% of small businesses see cash flow as a big obstacle to their running – and invoice finance is a great way to solve this, shortening the time between invoice issue and payment by submitting invoices to a factoring lender.

It’s a tough world out there at the moment for small businesses. However, looking into alternative finance options such as factoring, crowd funding or asset based lending could help to make it all a bit more bearable.

 

 

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