Finance · 20 February 2018

Business owners put growth on the back-burner rather than borrow cash

A majority of small business owners now expect to be rejected for finance

Despite adoption of alternative finance methods, funding remains a barrier to businesses, and many would rather put off growth than borrow money.

The majority of small businesses (70 per cent) would rather forgo growth than borrow money.

The British Business Bank’s 2018 Small Business Finance Markets report has found that there has been a decline in smaller business confidence and there is low demand for external finance.

In fact, over the last ten quarters, only 1.7 per cent of smaller businesses have sought new loans – less than half of businesses were confident they would get approved, even though the success rate is around 72 per cent.

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In more positive news, there is evidence that those businesses that are seeking cash injections are diversifying in their choice of finance.

The value of SME asset finance deals and peer-to-peer lending both showed strong growth, up 12 per cent and 51 per cent respectively in 2017. In addition, significant increases were seen in both the value and number of SME equity deals last year, up 79 per cent and 12 per cent respectively.

British Business Bank analysis found that, overall, more startups could become fast-growth businesses if there was greater availability of long-term patient capital.

In November’s Budget, the government allocated additional resources to the British Business Bank in response to the patient Capital Review, which aims to enable greater access to patient capital for high-growth startups and capital-intensive research and development businesses.

Keith Morgan, British Business Bank CEO, said: “A core objective of the British Business Bank is to encourage greater diversity of finance, so we welcome the growth in the uptake of equity finance and other alternatives to traditional lending.

“It can’t be overstated how important it is to build a more complete funding ladder for economically important high-growth businesses no matter where they are located. Scale-ups need more long-term patient capital throughout all stages of their development to be world-beating companies, and we look forward to using our new resources allocated at Autumn Budget to unlock more of this type of capital.”

Despite the challenges in the finance area, entrepreneurial activity remains strong in the UK, with a total of 5.7m businesses at the start of 2017 – this represents the highest ever population.

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Letitia Booty is a special projects journalist for Business Advice. She has a BA in English Literature from the University of East Anglia, and since graduating she has written for a variety of trade titles. Most recently, she was a reporter at SME magazine.


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