The rise of finance apathy in the SME community

With new data from the British Business Bank reporting that only half of UK SMEs look for finance from more than one provider¹ Ed Rimmer, CEO at alternative lender, Time Finance, explores the increasing phenomenon of finance apathy, and the need to reach more small to medium-sized businesses with creative finance solutions.

SMEs in the UK have a great deal of options when it comes to finance – many more than they realise. There is a wealth of research in the market that shines a light on the extent of this issue. Whether it’s caution when it comes to choosing a finance partner or a lack of awareness of the sheer variety of solutions available, SMEs are clearly struggling when it comes to accessing finance, and this is something we must address.

When it comes to SMEs seeking a finance provider, this is where we find the most stark signs of apathy. In its most recent Small Business Finance Markets¹ report, the British Business Bank (BBB) reported that in 2023, 51% of smaller businesses only considered finance from one provider. Even more shockingly, the BBB also found that only 5% of SMEs would consider seeking out another lender if they were declined finance by their own bank². That’s 95% of small businesses not actively looking for a ‘plan b’ when they’ve been turned down for finance.

Broadening SMEs finance choices 

Alongside the research into SMEs’ choices of funding partners, there is also a lot of data that tells us about the preferred forms of finance for SMEs. SME Finance Monitor³ reported that in the three months leading to February 2024, the most frequently used forms of finance for SMEs were credit cards (17%) and overdrafts (13%). Only 10% use asset finance. Elsewhere, the BBBreports that as much as 20% of SMEs use credit cards¹ as their main source of finance. I use the term ‘preferred’ for these choices when really this is more a case of familiarity. Credit cards and overdrafts are core products that many of us use as consumers. 

The challenge here is making businesses think more like businesses. We need to show them the power of asset finance for funding new tech that grows capacity and capability or introducing them to invoice finance as a revolving finance facility that keeps things moving. Better still, we need to open their eyes to the multi-product potential of asset-based lending (ABL). The more SMEs know about these products, the more adventurous they will become with their finance choices.

Rising demand driven by optimism

It’s very important that when it comes to SME finance, we make the distinction between awareness and appetite. There are certainly signs that small to medium sized businesses are cautious when it comes to external finance, but there are also contrasting figures that give a much more optimistic view. The BBB’s Small Business Finance Markets¹ report for instance also says that 59% of SMEs are in a ‘good mood’ about their finances, 48% have plans to grow and 4 in 10 SMEs are happy to borrow to grow.

So, there is a very clear gap. There is appetite, ambition and optimism in the small to medium sized business community. But there is also a distinct lack of awareness and understanding of the funding options available. Our job is to reach businesses with the solutions that take them out of their comfort zone. An overdraft or credit card may serve a short-term cashflow challenge, but these are rarely solutions that can be built into a long-term business strategy.

Notes:

1. British Business Bank, Small Business Finance Markets, 2023-24
2. British Business Bank & Ipsos Mori, SME Finance Survey, March 2023
3. SME Finance Monitor, An Independent Report by BVA BDRC, March 2024