Funding difficulties see SMEs miss out on £54bn revenue

The UK’s army of small and medium-sized enterprises (SMEs) are missing out on an estimated £54 billion in revenue because opportunities to expand, invest in technology, recruit and purchase equipment are being delayed or abandoned through a lack of external finance, according to new research from Portman Finance Group.

Drawing on insights from 2,000 SME business owners and financial decisionmakers, the report found 30% have missed a growth opportunity because of a lack of external finance, with those affected estimating an average revenue loss of more than £73,000.

Over half (53%) of those polled reported they found the business finance market confusing, and two thirds said they would be more likely to borrow if they understood their options better, with the same proportion stating they had identified external finance as a requirement for growth.

The survey found more than a third (36%) of SME financial decision makers see borrowing primarily as a strategic tool for growth, compared with just 10% who view it as something to be used only when absolutely necessary. More than half (54%) of SME leaders have considered taking external finance within the last three years.

However, the research also indicated that levels of confidence are not consistent across SMEs, particularly among smaller firms, and concerns around cost, risk, and financial stability continue to affect decision-making.

Among businesses that considered taking out external finance, four in ten either proceeded with only part of the funding they originally sought or did not proceed at all.

For those that did not proceed, high interest rates were the most common reason, cited by almost half (48%) of respondents. Concerns about taking on debt (34%) and worries about risking the financial stability of the business (31%) were also major factors.

One in five SMEs also reported that fear of rejection was a factor in their decision not to seek external finance despite having the ambition to grow.

The survey found evidence of a lack of trust in funders: less than half of SMEs have high or complete trust in high street banks (48%). Finance brokers follow at 43%, ahead of challenger or online banks (41%) and venture capitalists (40%).

Alex Read, Founder and Chief Executive Officer at Portman Finance Group said: “As someone who has founded and grown several businesses, I know that access to the right finance can be the difference between pursuing an opportunity and letting it pass.

“This is not an argument that every business should borrow more. It is an argument for businesses to receive the right professional support so they can make informed decisions with confidence — confidence in the options available, the providers offering them and the outcomes that investment could deliver.

“By closing that confidence gap, we can turn missed opportunities into investment, jobs and economic growth.

“If we are serious about unlocking the next generation of SME growth, we need a finance market that is easier to understand and better aligned to the day-to-day realities facing businesses. By helping SMEs understand their options and access the right funding with confidence, we can turn missed opportunities into investment and economic growth.”

Read Portman’s report The Cost of Misconfidence