Chris Dines, CEO of Informed Funding

Since the financial crisis of 2008, gross lending (primarily by banks) to companies with fewer than 249 employees (SMEs) has shrunk every year. The pace of shrinkage has recently dropped, though ALL companies (SMEs included) have added to cash reserves, so aggregated net lending must have shrunk faster of course. Some related observations (sourced from Bank of England reporting):

• The Bank Rejection rate of lending to SMEs has fallen from a peak in excess of 40% in 2012/13 to a level that is around the 25% mark.
• Indicative (Bank) interest rates to SMEs have fallen to below 5% (APR will be higher) in the past year. This is historically low (though larger businesses get a much better deal).
• According to BDRC SME Finance Monitor (2015), 82% of SMEs were “Happy Non Borrowers” in 2015, up from 72% in 2012.

The range of non-bank finance now available is considerable – and some, not always in a good way, is also easy and quick to access!

So, given that availability is good, why aren’t SMEs borrowing? In fact, why, when surveyed, do SMEs say their number one challenge is still finance?!

We appear to have a real disconnect here – and in my view it is damaging to the UK economy. Growth rates (and more importantly, productivity) rates in the SME sector are poor. Government figures regularly highlight the SME sector as growing, because the volume of start-ups is growing. However, this is primarily down to the huge growth in freelancing and lifestyle businesses. Most freelancing is just providing big companies with a more fluid, less contracted, labour force.

The reality is that very few SMEs grow significantly. My experience from meeting lots of SMEs is that the lack of appetite for debt is a fundamental problem here – and I don’t mean businesses that should not go near debt because they would be incapable of repaying.

Few businesses look at debt finance from a strategic angle, and I rarely see a business plan that looks at the cost of debt finance in the same detail as, say, marketing. In part this is down to lack of training on financial matters, but it’s also down to an instinctive view that borrowing is really quite bad news – potentially very bad news for the individuals involved when things go bad. Again, there is a real lack of understanding of the risks (and how to manage them) around debt. Few business owners feel they can trust lenders – whether or not that viewpoint is merited.

These issues won’t change overnight, and the Government still seems fixated on the issue of Bank lending as the main challenge. In the meantime there is a woeful lack of training in finance for business owners – exacerbated by the Government binning the Growth Accelerator programme for SMEs. Meanwhile, we at Informed Funding are trying to do our bit!

We are holding a half day conference in West on 22 September. For any business leader interested in getting their company’s finances optimised, this Event is a great opportunity. It’s a chance to spend the morning with leading experts who can help with the big questions on finance strategy, legal challenges, risk, funding options and negotiating with Funders. There will also be a wide range of different types of Funders who have developed new offers, all there to explain how they work in today’s market. The Event will leave lots of time for one to one discussions and networking, including lunch, all held at Holiday Inn’s Brentford Lock Conference Centre. CLICK HERE for more details and registration.