Why Do SMEs Find Borrowing Difficult?
There is plenty of media coverage around the difficulties SMEs have in obtaining finance. There is also plenty of media coverage around the schemes, options and Government backed ideas to get finance moving.
The problem with all this is that the real reason is still missed.
Let me show you the facts;
This quote came from a 2014 report into commercial funding and alternative finance undertaken by Grant Thornton,
“It is estimated that 91% of small and medium sized enterprises (SME) seek funding from the UK’s largest five banks..”
So businesses are seeking borrowing from a very narrow pool of options, most are approaching their bank and if not successful assuming that there are no more options.
Let me take this thinking a step further;
The table below came from a Biz survey (Department of Business, Innovation & Skills) and shows the experiences businesses have when seeking borrowing,
The highlights of this report are;
- Of those companies that applied for bank loans, 57% encountered difficulties, 42% got no funding, 16% got some but not what they really needed
- With leasing and asset finance the percentages were better
With bank loans, or traditional loan finance, still being the cornerstone requirement of small business then you start to understand where the problems lie. It is also no real surprise that ‘structured’ finance such as asset finance or leasing is easier to obtain.
The difficulty is that businesses are seeking borrowing from a source that will say no in 58% of cases and will only provide what is requested in 39% of cases, yet 91% of businesses continue to apply to these sources as their first point of application.
That is the stats, but what is the answer?
Alternative Sources of Commercial Lending
To start to look at where the answer is you have to understand that the market for borrowing has changed. Think of finance (who you borrow from) as another supplier in your business.
When choosing a supplier you pick the best suited supplier to you. Typically this is decided by;
- Ability to deliver
- Terms of trade
There are other factors but these are the basics.
Choosing a commercial lender should be little different. Some lenders will be good for one thing and not another, there is nothing wrong with that, however businesses need to stop applying for borrowing from lenders that don’t want their business. There are always choices, so take the same approach as you would with your suppliers. Pick and choose the best for you at that time.
The alternative business finance sector in the UK is doubling every year.
The next challenge for businesses is working out who to work with. Don’t worry as I can help you and take that hassle away, the key thing is to know that there are solutions out there and there are borrowing solutions for almost every business, they may just be in a different place you weren’t aware of.
By Dave Farmer
For any questions about this post please contact Lime Consultancy or add your comments above and I will get a response to you.