Lack of funding and specialist advice putting SME growth at risk

Could the high street banks be doing more to support Scotland’s smaller enterprises?

A lack of funding is putting the growth of Scotland’s SMEs at risk, claims a new report by Close Brothers Group.
Thirty-seven per cent of SMEs have been turned down for finance or credit in their first two years, with 25% of smaller firms relying on personal savings to grow their businesses, according to the Banking on Growth: Closing the SME funding gap report.
Close Brothers says a lack of specialist advice and support for SMEs from high street banks – particularly for smaller enterprises – means many are resorting to funding options which risk restricting their growth.
While 38% of all SMEs have used bank loans to grow their business, it’s the larger, more established SMEs that are most likely to use bank lending, according to Close Brothers’ latest research.
Just 25% of micro-SMEs (companies with 1-9 employees) have used bank loans to grow – a figure that rises to 51% for SMEs with more than 100 employees. This trend is mirrored in other sources of funding, such as asset finance, where micro-SMEs, who may not have significant assets within the business are left with fewer options.
SMEs are also more likely to be turned down for finance in their early growth stages. 37% have been refused finance or credit in their first two years, and a quarter have been turned down as they look to grow from a small to medium sized business. Given there are more than one million micro SMEs in the UK, providing four million jobs, a lack of access to appropriate funding represents a significant barrier to long-term economic growth.
As a result, SMEs are often overly reliant on using personal savings, credit cards or loans from friends and family to fund expansion. More than a quarter of all SMEs have also used overdrafts to grow their business. This figure increases from 23% for micro-SMEs to 30% at the larger end of the spectrum, suggesting that greater education for SMEs is needed as they grow so they are fully aware alternative sources of finance are available to them.   As a way of increasing liquidity, overdrafts are not ideal, not least because of a lack of security for companies.
Adrian Sainsbury, managing director of Close Brothers Banking division, said: “SMEs have not always found it easy to secure the right funding to sustain or grow their businesses. Given the huge contribution these companies make to the labour market, failure to support their growth is a risk to the UK economy.
“It’s vital that SMEs receive specialised advice and products to suit their circumstances and provide the right platform for growth. One size does not fit all.
“Education is also important. Without the right support, many SMEs are relying on unstable or costly funding to expand. Overdrafts often do not provide enough cash to fund the much needed new vans, computers or machine tools, and at any time the bank can withdraw the facility leaving little or no time to repay the money.”

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Hannah Hamilton, who is a former Fife College student, is a reporter and assistant content editor for Scotland B2B, specialising in B2B news and features. She can be contacted via editorial@scotlandb2b-eastcoast.co.uk