The growth a ‘non-borrowing culture’ is threatening to derail the financial recovery, according to new research from specialist mutual financial services provider Wesleyan Bank.
Some 78% of SMEs are too risk-averse to seek external finance, according the research, which also revealed that when it comes to alternative forms of finance, levels of understanding among SMEs were startlingly low.
Some 500 SMEs responded to the survey, with only 2% reporting they regularly borrow to support the growth of their business. Small business owners are also more likely to use traditional business funding options, rather than looking into the alternative options, a situation that is stunting growth among smaller businesses.
Traditional finance still dominates
The research found that traditional finance options were still the dominant form of funding SMEs:
- Using savings – 55%
- Overdraft/credit card – 38%
- Bank loan – 31%
However, when asked if they would consider alternative finance options, the results were clear:
- Invoice finance – borrowing money against unpaid invoices to support cash flow and release funding for investment – 6% would
- Equity finance, asset based lending and asset finance – for example, the ability to invest in new premises, equipment and the latest IT technologies – 4% each
- Crowdfunding – 3%
Google as adviser
According to Wesleyan, one of the main obstacles to companies accessing alternative finance is a lack of good advice. The research found that “more SMEs would prefer to turn to Google as a source of financial advice compared to 39% who would consult their bank.”
“The SME community needs to understand the plurality of finance options available to them, beyond relying on internet-based research alone,” says Sean Read, Director of Sales & Marketing at Wesleyan Bank. “Trusted and leading providers… are able to explicitly support SMEs by offering specialist products and guidance that is tailored to their growth plans and business situation.”