A fifth of medium-sized firms turn to alternative finance

by Jun 17, 2019Financial News, Small Business News, Small Business Tips & Advice

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The latest BEIS survey shows compelling evidence to support the challenges faced by SMEs when trying to secure alternative finance from traditional lenders.

Investor personality types and the study of behavioural finance

The Government’s latest snapshot of the SME sector provided compelling evidence of the challenges faced by SME firms when trying to secure finance from traditional lenders. The Department for Business, Energy and Industrial Strategy’s annual Small Business Survey showed that just 12% of SMEs sought external finance in 2018, less than half the proportion at the start of the decade. The downward trend was particularly dramatic in the finance and property sectors, which saw loan applications plunge from 16% in 2017 to just 10% last year.

While some of this decline can undoubtedly be attributed to SMEs putting investment plans on hold until the Brexit outcome becomes clearer, there is also growing evidence that they are finding it harder to get traditional bank finance. Indeed, as we noted in a previous blog, the Bank of England’s latest Inflation Report showed the Bank’s own agents reporting tougher lending criteria by the high street banks across the board, but with SMEs bearing the brunt.

This growing reluctance by traditional lenders to finance SMEs has had two major consequences. First, there is a worrying trend for firms to rely on more costly sources of finance, with the BEIS survey showing that credit cards were the top source last year, used by 32% of firms. While credit cards are a convenient way to manage short term cash flow or minor expenses, they can prove extremely expensive if the balance isn’t cleared every month. Flashing the plastic is more prevalent among smaller or micro businesses (those with fewer than 50 employees), which tend to be less successful in their bank loan applications than their larger counterparts.

The second, healthier consequence is that more SMEs are turning to alternative sources of finance and using platforms such as CODE Investing to find them. This is especially true among firms at the larger end of the SME spectrum, i.e. those with between 50 and 249 employees and described by BEIS as medium-sized. Its survey showed that around a fifth (19%) of firms in this category accessed alternative finance last year, with manufacturing and administrative services firms particularly keen on tapping into this increasingly popular market.

CODE works not only with traditional lenders but also with some of the world’s largest investment and commercial banks, specialist lenders and private funds, thereby unlocking funding options previously unavailable to SMEs. We specialise in debt financing, which does not dilute ownership and can be matched to a company’s cash flow and business strategy.

With finance becoming an increasingly fraught area for SMEs, it is timely that platforms like CODE have come to the fore to assist in securing bank funding or, where necessary, finding newer alternatives.

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