33% of SMEs need financing to survive next year

A recent survey of 500 SMEs held by invoice finance company, Novuna Business Cash Flow, reveals that 33% of small and medium-sized enterprises (SMEs) in the UK urgently require financial support within the next year to continue their operations.

As businesses grapple with economic challenges, there is a critical need to understand the many funding options available beyond personal borrowing and traditional bank loans.

SMEs forced to turn to personal borrowing and bank loans

This survey highlights the heavy reliance on personal sources of finance, with 19% of SMEs resorting to using their own savings, borrowing from friends and family, or re-mortgaging properties to make ends meet. These personal borrowing methods are the most common forms of funding, closely followed by secured bank loans, which account for 17% and are a traditional source of business finance. However, could other cashflow finance options be the answer to stabilising SMEs operations.

45% of SMEs struggling due to late payments from clients

A significant challenge highlighted by this survey is the detrimental impact of late payments on business cash flow, affecting 45% of SMEs. Business cash flow represents the net amount of cash and cash-equivalents being transferred into and out of a business. In the UK, where timely payments are crucial for maintaining healthy operations, delayed payments are severely disrupting business activities.

Despite these challenges, only 2% of SMEs have accessed or applied for other cashflow finance such as invoice finance and account receivable factoring since November 2023. These funding options are designed to advance money against outstanding invoices, thereby enhancing cash flow. This low uptake could suggest a lack of awareness and understanding of such financial alternatives that could potentially ease the cash flow problems caused by late payments.

37% believe that external funding is more crucial than ever due to unfavourable economic conditions

With 37% of SMEs indicating that worsening economic conditions are making external funding more crucial than ever, and a stark 34% admitting they would have to close without this essential support, the importance of comprehensive financial literacy among SMEs is clear. There is an urgent need for concerted efforts to ensure that SMEs are fully informed about the various financing options available to them, enabling them not only to survive but also to thrive in challenging economic landscapes.

John Atkinson, Head of Commercial and Strategy at Novuna Business Cash Flow, emphasises the benefits of exploring diverse financing options, particularly cashflow finance. “Our survey underscores the critical role that access to business finance plays in sustaining companies, and the variety of options used to stay afloat. Business cash flow finance can offer a lifeline to companies struggling to make ends meet due to delayed payments. It’s essential that more SMEs become aware of and understand how to leverage such options effectively. At Novuna Business Cash Flow, we are committed to helping businesses flourish by easing the pressures of cash flow challenges associated with late or outstanding invoices.”