57 per cent of the UK’s small and medium-sized enterprises (SMEs) struggle to obtain finance. This is according to research commissioned by financial services firm American Express. The study also reports that more companies than ever are turning to non-bank sources such as crowdsourcing and alternative lenders to gain access to growth capital.
The research, carried out among 3,200 senior executives and decision-makers in SMEs across 15 countries, found that despite economic uncertainty many companies are still focusing on growth and expansion strategies to improve their financial performance. 43 per cent of UK SMEs says that business expansion will be a top priority for their business over the next three years.
Despite the alternative finance providers making inroads into the lending space, high-street banks still account for the lion’s share of SME lending, but they cannot meet the varied requirements of small businesses looking for finance. Research from Close Brothers showed almost a quarter of small business said their lender did not understand their specific needs, while a further 25 per cent said their lender did not understand their sector at all.
Of the businesses that apply to their bank, over a fifth are turned down for finance, with half of this group having been turned down more than once. In the case of first-time borrowers, the rejection rate is around 50 per cent and over a third of these SMEs gave up after their first rejection, unaware of alternative forms of financing.
Small businesses see new forms of financing, including peer-to-peer loans, as unsuitable and complicated. The recently announced government Bank Referral Scheme means that in the future high street banks will be required to offer a referral to any SMEs they turn down for finance which will go some way to filling the knowledge gap about these providers.