SME funding gap: Firms unable to access growth finance
59 per cent of small- and medium-sized enterprises (SMEs) and their brokers say it has become increasingly difficult to access growth finance over the past five years.
A new report from SME funder Praetura found that 46 per cent of small businesses see access to finance as one of the biggest challenges they face.
The research also showed that smaller businesses do not feel that they are understood by mainstream lenders.
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Just 27 per cent of SMEs and their brokers think high street banks take the time to understand their business, while 68 per cent think that banks support SMEs less than they have in previous years.
71 per cent of SMEs rejected by high street banks said it was due to mismatched lending criteria, 56 per cent said they were deemed too risky, and 44 per cent had unsuitable financial history.
The report found that the alternative lender ecosystem is helping these underserved SMEs, with 51 per cent of firms that were rejected for finance by a high street bank going to a specialist lender.
“We celebrate our five million SMEs contributing £2.2 trillion to the economy, but the reality is that more than half of that comes from 29,000 high growth companies who only represent 0.6 per cent of the population,” said Dame Teresa Graham, chief of the SME advisory group for UK Finance and chair of the administrative burdens advisory board at HMRC, who wrote the forward for the report.
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“Whilst we celebrate this small few, the vast majority of SMEs are struggling to grow at a meaningful rate.
“The common problems limiting SMEs’ potential are access to markets, talent, infrastructure and other known issues, but we rarely talk about patient capital and leadership.
“Patient capital is finance on their terms, from a provider who takes time to understand their needs and puts their goals first. Whilst this may seem like customer service common sense in the finance sector, many SMEs are still unaware of the instruments available to them beyond a simple overdraft. And whilst there is much more competition within the banking sector for SMEs, not all new entrants offer the full range of products that SMEs need.”
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