Time to face up to the 'fear of funding'

Nearly half of all SME businesses in the UK believe that British businesses are missing out on growth opportunities because of a reluctance to borrow, and that the economy is being stifled as a result.

According to recent research carried out by research consultancy BDRC Continental it appears that many SMEs have reached a crossroads when it comes to funding. The research found that although SMEs know that they need an injection of cash to take their business to the next level – or to just survive – there is a nagging doubt about turning to external funders.

The survey uncovered an interesting anomaly. Despite concerns about economic growth being hampered by a reluctance to seek funding 27% of SMEs were still holding back.

So why the reluctance to borrow and what factors are holding businesses back from seeking the funding they need to grow?

One of the main reasons, the survey found, is a belief that external funding results in a loss of independence (47%). This is a myth because there are many types of funding available, other than equity funding, where the business owner retains full control of the business and there is no loss of independence. It pays to do some research into the types of funding options available on the market.

Undeniably, borrowing can be a worry. Over 40 per cent felt that seeking external funding caused too many worries which prevented them from looking for external funding. Many (37%) also found that taking external funding is too risky in the current economic climate. Seeking assistance through reputable FCA regulated intermediaries who can provide tailored solutions from over 600 sources of funding will help to take the worry out of external funding and mitigate the risks involved.

Interestingly, it isn’t concerns around accessing finance that is causing hesitations, according to the survey. Confidence in securing finance is high; 59% of SMEs were sure they would get the money they needed, if they applied, and 57% felt they had a good understanding of the finance options available to them.

In general, SMEs understand that borrowing can support their growth. On average, 27% of SMEs that do borrow, attribute external funding as a key reason for their business growth. For larger SMEs (with 50-249 employees) this number rose to over a third (35%). Over a fifth (21%) of businesses that have borrowed recently, also felt that without external funding, they would not be in operation today. There is evidence to suggest that external funding can have a hugely positive impact on an SME.

That businesses understand the benefits of borrowing, yet do not seek the funding that could have a positive effect on their operation is not good news for the UK economy, but it comes as no surprise. The years of economic instability which preceded Brexit have led to a general uncertainty on ‘what next’. The call for a snap election has added further to a feeling of change across the country. It’s no wonder, then, that businesses lack the confidence to borrow.

Of all the uncertainty facing British business, the biggest challenge to overcome is that SMEs have a fear of funding and are therefore not seeking finance when they need it. This is contrary to messages that lenders aren’t lending, which is simply not the case; borrowing figures are down due to demand – not supply.

Mixed messages are contributing to confusion, taking the attention away from educating SMEs about the positive impact borrowing money can have.

As well as the peace of mind that comes with knowing that the basic bills will be covered, the right funding can be used for positive business investment, for example, to upgrade machinery, fulfil a large order or negotiate cash-upfront discounts with suppliers, all of which help to lead to growth.

The funding sector and the government need to come together to help change the negative perceptions around borrowing to instil a sense of confidence in borrowing in SMEs, and support them to grow.

For more information on funding options contact Pegasus Funding Resources on 0203 327 0567.

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