Could SMEs fear of debt and economy be preventing growth

SMEs are reluctant to borrow through fears of building up debt and concerns about the economy rather than because they can struggle to get access to finance, according to new data.


As a result many SMEs are not expanding and developing as quickly as they otherwise might do and with the recovery of the economy dependent on smaller businesses this could be an issue.


Almost two-thirds of nearly 2,000 business managers and owners questioned by YouGov stated that debt and the state of the economy were keeping them out of the market.


The study looked at the period of the last two years, while other reasons listed were high interest rates, security demands from the banks and the hassle of setting up a new borrowing facility.


One-in-three companies had looked outside the traditional lending institutions in search of a solution while one-in-five had secured backing from private investors, the government or private sector loans.


Lease and hire purchase agreements, venture capital and funding from owners and directors completed the list of sources for finance.


This finance is important as it not only helps growth and prosperity but also helps businesses avoid situations where company restructuring or administration might be the solutions.


In extreme cases, company voluntary arrangements and liquidation can occur so companies need to ensure they have adequate means of finance to continue trading.


The results of the survey tend to suggest there are a number of obstacles in the way of acquiring finance, and it is not simply the case that banks are hampering SME lending.


While borrowing more to help expansion can seem like a wise move, many SMEs have already relied on bank loans at some point and are fearful of what more debt mind bring.


However, as long as alternative sources of finance remain available then many companies are in a position to fund, either in full or in part, some level of expansion.


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