SMEs are ignorant of alternative financing

The UK’s SMEs are missing out on business finance with many resorting to traditional bank overdrafts or personal sources of cash, according to research organisation Experian.

A poll by Experian of nearly 300 SMEs, conducted to understand how and why they have sought additional finance, has found that alternative sources of finance are yet to have made a significant impact. 

Of the various forms of business funding options, crowd-funding was the least well-known among respondents, with 69% never having heard of it. Meanwhile, angel investment, business cash advances and government grants also scored poorly in terms of awareness. 

When questioned about the first thing they do when thinking about additional financing, 42% of respondents said that they would approach their personal bank. This was followed by 18% who said they would speak to their accountant.

Few of the respondents stated that they would shop around: just one in ten said they would try all the major banks first, 7% said they would search the internet for the best deals and just 6% said they would speak to a broker.

Max Firth, UK managing director for Experian’s business information services division, said: “When looking for finance, the first port of call for SMEs is their bank. However, a commercial loan is unlikely to be appropriate for their specific needs, especially if the need is short term, such as alleviating cash flow issues. 

“For many SMEs, it may make more sense to consider invoice finance options to alleviate the stress of collecting payments, especially where large new deals are won and they are already dealing with increased outgoings to ensure delivery of an order.”

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