Post-Brexit, all eyes will be on the UK economy, and how it can thrive in challenging times.
According to the Federation of Small Businesses (FSB) SMEs make up over 99% of all private sector business, and account for 60% of all private sector employment in the UK. Therefore, how the economy performs will be very much down to these small and medium sized businesses.
What financial support will they need to grow and help drive the economy, even if times get tough?
Are Businesses and Banks Too Risk Averse?
“When things start to look uncertain, people become more risk averse, and this applies both to businesses and banks. This caution is understandable, but it can also be fatal.”
For businesses to grow, they need investment, but many are wary of going to the bank to apply for a loan, or an overdraft.
At the same time, banks themselves can be rigid in their lending rules.
“SMEs can find that either the banks won’t lend to them, or will only lend with the sort of conditions attached that make the loan itself much less attractive”
Immediately following the financial crisis, banks were looking to shore up their capital and control their lending. Ostensibly, more recently they have worked at building trust and focused on building relationships with SMEs.
However, in practice, many businesses feel that banks are unlikely to lend, and therefore abandon investment plans, which in turn cuts off the potential for growth.
“The FSB Index has recorded a sharp fall in credit applications, and in a scenario where only one in 10 firms is applying for any kind of external finance, that means less cash flowing within the business community, so less investment, less growth and less jobs.”
Can Alternative Financing Rescue Business?
There is one potential cause for optimism however: the rise of alternative funding solutions.
“There are now far more alternative routes to securing funding. But it’s a question of raising awareness of them among SMEs.”
These alternatives include arrangements such as:
- Invoice factoring
- Asset finance
- Export finance
- Lines of credit
- Working capital
- VAT loans
- Peer to peer lending, and many more
Furthermore, SMEs are not dependent on the big banks to apply for them.
“This represents a significant cultural shift in funding, and one which SMEs should be taking advantage of.”
If the UK’s SMEs begin to recognise these options, they can stand to benefit from them significantly. There is a whole range of alternative lenders, each suitable for different stages in a business’s development.
“It’s about marrying up the needs of the business with the form of funding, and the provider, best suited to it.”
“The lending environment for SMEs is a lot healthier than many of them realise and, in some ways, the growth of alternative funding solutions mirrors the agility, adaptability and innovation of many smaller businesses and should be the perfect fit”
Blue Bull Finance offers a one-stop shop for SMEs looking for funding advice and support, specialising in sourcing alternative financing solutions.