Are SMEs turning their back on traditional bank funding?

Small businesses in the UK are shying away from traditional methods of bank finance, the Forum of Private Business has claimed.


Instead, they are turning towards alternative lenders as they look to secure enough funding to drive growth and expansion.


The BDRC Continental SME Finance Monitor suggests that many small and microbuisnesses are turning to their supply chain or their own personal funds for these purposes.


Despite this, the appetite to find sources of finance remains high, showcasing the general feeling that firms want to take advantage of improving economic conditions.


In the third quarter of 2013, 23% of small businesses said they were planning to borrow in the coming three months – the highest level since the survey started in 2011.


Confidence in a firm’s ability to secure finance is a particular issue as many small businesses had concerns; a 10% gap between those who were confident they would receive finance and those who actually did (46% compared to 56%) highlights this.


More than two thirds of businesses said they wanted to be debt free and would focus on meeting existing payments before looking elsewhere.


Meanwhile only 39% of businesses were happy to use external finances to help drive business growth, suggesting that many want a firm footing before even considering expansion.


Other forms of funding were also a more popular choice rather than core banking products with more businesses turning to crowd funding as one solution.


Awareness of this finance method reached its highest level yet in the third quarter, with 38% of microbusinesses and 35% of SMEs aware of the opportunities.


Trade credit was another popular choice with 31% of businesses using it in comparison to 28% who use core banking products.


A number of barriers exist with finding finance and failing to address some of them can result in the need for insolvency practitioners.


Some firms just do not want to seek finance while others can face late payment and cash flow issues which can seriously hinder expansion or development.


By Phil Smith


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