Business finance for small and medium sized businesses - the challenge of finding the means

The need for external funding:

In the current economic landscape, it is unsurprising that UK businesses are requiring more financial support in order to continue operating effectively.

Our recent research with 500 small and medium sized businesses revealed:

1. Almost half (43%) reported an increase in their need for external finance compared to six months ago.
2. Nearly a third (30%) currently use external funding
3. A further 22 percent plan to do so in the next six months.

The most common reason businesses use external finance is to fund expansion (49%). However, a significant proportion (38%) need the funding simply to ensure they can keep their businesses operating smoothly day-to-day, emphasising the tough trading conditions many are having to manage. A further 14 percent of SMEs require third-party finance to help them pay off debt.

The challenge of accessing business funding

While demand for funding seems to be on the rise, access is proving tricky. Overall, more than half (54%) of SMEs believe that it is more difficult to access external finance now than it was six months ago.

Depending on the sectors in which they operate, this perspective becomes more pronounced; sixty one percent of small wholesale businesses say that accessing capital is a struggle, as do 57 percent of both construction and manufacturing businesses.

The issue is clearly causing problems for a significant proportion of SMEs up and down the country though it is more acute in some areas than others:

• In London, 70 percent of SMEs report finding it hard to unlock funding sources.
• In the North East it’s a problem for 63%
• The North West and West Midlands are equal at 58%

The data indicate that a substantial part of the problem lies in the fact that traditional banks seem less inclined to lend to small businesses than might once have been the case. Over two thirds (67%) of SMEs report this experience. Indeed, the Bank of England’s latest Agent Summary reports that lenders are continuing to favour larger well established businesses.

Again, geographic and sectoral splits suggest a potentially unlevel playing field. For example, the proportion of businesses hardest hit by the challenge of accessing bank finance is the highest in the West Midlands at 84 percent, while in the North West it is 75 percent. This sentiment is echoed by wider sources. According to the BDRC SME Finance Monitor, more than half of funding applications are currently rejected by banks. And the BDRC SME Finance Monitor indicates that the funding success rate for SMEs has fallen to 46 percent, a significant decrease on the 74 percent seen pre-COVID.

Alongside the apparent retrenchment of high street banks from the SME funding space, small businesses have experienced a reduction in the amount of funding their financiers are prepared to offer them.

• For those that already have external financing in place, more than four in ten (42%) say the funding levels have been reduced in the past six months.
• The issue is a particular challenge for nearly half (46%) of family owned businesses, 47 percent of those in the construction sector, and more than half (55%) of businesses in the West Midlands.

A reliable funder who is open for business

Whilst other providers may have a reduced willingness to finance SMEs, Bibby Financial Services is open for business, offering funding now as we have done for over 40 years.

Find out more about our Invoice Finance solutions