Seeking funding is an important step for SMEs, particularly in the early stages of business growth. Yet they can often encounter significant hurdles if seeking support through the traditional bank routes for debt funding.
Access to Finance business adviser Iain Duncan a corporate and commercial finance specialist, shares insights on the challenges faced by SMEs and how the Access to Finance can help SMEs to secure funding.
Debt funding is a way for startups to raise money for operations and expansion by borrowing funds from a lender, traditionally gained through banks.
Increasingly the service offering provided by the larger banks in the UK can be difficult for SMEs to secure, particularly due to developments in online banking and internet-based transactions that reduce the opportunities for smaller businesses to negotiate and secure business loans at a personal level.
The Small Business Finance Markets 2023/24 report published by the British Business Bank earlier this year, highlighted that, as of Q3 2023, the seven largest UK banks loan approval rate was running at only 48 per cent, with small businesses increasingly looking at the challenger/specialist banks market.
This is reflected in gross lending by the challenger banks and specialist banks being the second highest on record and accounting for 59 per cent of gross lending, compared to the ‘big five’ who saw their gross lending reduce by 18per cent in 2023 compared to figures for 2022.
Here are some of the key issues SMEs face when trying to secure debt funding from the larger banks in the UK:
Large banks typically have strict lending criteria, which can be difficult for small businesses to meet. This includes high credit score requirements, extensive documentation, and evidencing and proven track record of profitability. Many small businesses, especially startups, struggle to satisfy these conditions.
Banks often require substantial collateral to secure a loan. Small businesses may not have sufficient assets to meet these demands, making it challenging to obtain necessary funding.
The loan application process with large banks can be lengthy and complex, involving multiple stages of approval. This can be discouraging for small business owners who need quick access to funds.
Large banks may lack a nuanced understanding of the unique needs and challenges faced by small businesses. This can result in less tailored financial products and services, which may not be the best fit for small enterprises.
Economic uncertainty can make banks more risk-averse, leading to tighter lending standards. Small businesses, perceived as higher risk, often bear the brunt of this cautious approach.
Access to Finance Lancashire offers a lifeline to small businesses struggling to secure funding. Here’s how our team of advisers can assist:
Access to Finance provides impartial and specialist advice to help businesses navigate the complex finance ecosystem. Our team of finance specialists can guide businesses through the process to become investment ready and apply for funding.
Equipped with the knowledge of a wide range of financial products and access to an extensive funding and finance network, Access to Finance advisers can help businesses identify the most suitable financial products from a wide range of options. This includes both public and private sector funding channels. This tailored approach ensures that businesses find the right fit for their specific needs.
Access to Finance offers programmes to help businesses develop robust business plans and financial forecasts. These programmes increase the chances of securing finance by making businesses more attractive to potential investors including the larger banks.
Businesses can benefit from one-to-one support, including finance facility reviews and recommendations. This personalised assistance helps businesses understand their financial position and explore viable funding options.
In addition to the traditional bank debt funding route, the team at Access to Finance can facilitate introductions to other appropriate finance providers, including business angels and other investors. This networking support can open doors to funding opportunities that might otherwise be inaccessible.
While small businesses across Lancashire may face considerable challenges in borrowing from large banks, services like Access to Finance Lancashire can provide crucial support. By offering tailored advice, investment readiness programmes, and personalised assistance, they help small businesses overcome financial barriers and achieve their growth ambitions.
About the author
Iain Duncan has a wealth of experience built up over nearly 37 years in a highly successful career in banking, as a corporate and commercial finance specialist, working primarily with North West SME’s supporting founders with their financing needs and requirements.
He has helped businesses across a wide spectrum of business sectors, more recently running his own business consultancy providing strategic and financial advice to businesses and founders.
The Access to Finance service is for ambitious businesses with a desire to grow, invest, create jobs and / or innovate and trade internationally. Whether you are looking to secure investment, seeking a loan or planning an acquisition, our team can help. To contact our team, call the Boost helpdesk on 0800 488 0057, or visit the Boost contact helpdesk page.
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