UK SMEs still struggling to find funding

Small businesses in the UK are still suffering from lack of funds at least partially due to lenders’ hesitance in making affordable loans as start-up capital for entrepreneurs in private business. In spite of efforts by the government to incentivise banks and mortgage companies, a large percentage of SME owners have been refused a loan and/or are discouraged from even applying.

According to statistics from BCRD’s SME Finance Monitor as of March this year, as many as half of small businesses that applied for a first-time loan were turned down. Businesses with 0 to 9 employees averaged about the same percentage of loan applications year on year, but those with staff of 10 to 49 and 50 to 249 averaged about 5% less applications, and statistics from May this year show that the percentages are still dropping.

The government’s finance initiative, Funding for Lending, is the biggest incentive so far, but only about 23% of the business owners surveyed were familiar with the scheme. Of the smallest businesses (0-9) more than half were unaware of any of the finance initiatives available, and out of 900,000 SMEs, only about 20% of the owners said they believed those initiatives would actually help them get funds.

Director General of the British Chambers of Commerce, John Longworth, made the observation that though it is not surprising that start-up businesses have a harder time getting a loan approved than those with a proven track record, those same start-ups are often the very ones with the ambition and creativity to make a go of a new business.

Longworth included Britain’s small exporters in the category of underfunded SMEs; he said, “Without the oxygen provided by strong cash flow and the availability of credit on acceptable terms, existing and medium-sized exporters [and local dealers] may never become the champions of tomorrow.”