According to new research1 commissioned by ground-breaking financial utility, Saxo Payments Banking Circle, SMEs are facing potentially fatal challenges in accessing finance to support the growth of their business.
“Since the financial crisis began in 2008, mainstream banks have been less willing to lend, particularly to smaller enterprises and this has forced SMEs into an unfair fight for the finance they need to compete effectively,” explained Anders la Cour, co-founder and Chief Executive Officer of Saxo Payments Banking Circle. “Our research found that lack of access to additional finance would force 25% of SMEs to let employees go. Nearly a third (30%) would have to reduce prices to encourage sales and increase cashflow, and 39% would be unable to buy the equipment the business needs.”
Over 500 financial decision makers and directors in SMEs that have an online presence responded to the research commissioned by Saxo Payments Banking Circle. Almost all (92.5%) have accessed business finance within the past five years, but many have experienced difficulties in borrowing from their usual bank.
Interest rates and fees were the biggest concern, with 58% saying they would consider finance from a non-bank if it offered lower interest rates. 44% would do so for lower arrangement fees. 25% would be attracted to a non-bank by simple online account management.
The reason for SMEs going into battle for finance varies, but buying equipment was the most common reason why they needed extra cash – for 52.9% of SMEs. Purchasing inventory came in second place (34.5%), followed by expanding into new markets for 27.5%.
The most common type of finance used was a one to three year loan, taken out specifically for the purpose. The second most common type of finance was an overdraft. And, whilst likely to be more expensive than other finance facilities, 60% of SMEs with 10-49 employees said they had relied on their overdraft within the past five years. Without that essential facility they would have had to take drastic steps to cut costs.
Ability to access finance quickly is essential for small businesses working in a fast-paced market and trying to compete effectively. However, the Banking Circle research painted a worrying picture of the length of time firms wait to get their hands on the cash their business needs. Just 3% managed to get the finance arranged within a week. 33.3% took 1-2 weeks and 36.3% waited 3-4 weeks for the finance to be arrange. 2.1% of SMEs waited up to six months for their finance – a small percentage, but representing almost 120,000 businesses across the UK.
“SMEs play a vital role in the global economy, and anything holding them back from their potential could have a severe and far-reaching impact”, continued Anders la Cour. “The business landscape is changing, and traditional lenders are not able to keep up and meet the needs of SMEs. Only financial institutions willing to adapt to new market conditions, working with third-party providers in an ecosystem model, will remain competitive and successful in the digital age.”
An exclusive whitepaper based on the research has been published by Saxo Payments Banking Circle. Register here for a copy of ‘The Epic Business Loan Battle: SMEs fighting for finance’.