Lack of funding has prompted one in ten SMEs to fold: Need for specialist finance evident

One in ten SMEs that have struggled to access funding eventually folded according to research from Shawbrook, highlighting the need for specialist finance in the SME sector.

Indeed, Shawbrook’s research amongst senior decision makers at small and medium sized businesses found that three quarters (72%) had experienced difficulties accessing funding. While one in ten of this group eventually saw their business fold, funding challenges caused other obstacles for a much broader range of SMEs.

29% of leaders reported having to delay significant investments in their business due to a lack of funding, while a further 29% said they were unable to take advantage of investment opportunities to grow their business. This was particularly the case for smaller businesses, those with under 100 employees (34%) compared to larger businesses (27%).

Decisions not to invest in new technology or machinery (28%) or hire more staff (22%) have also had to be made due to challenges accessing funding.

Although funding is especially vital in the early stages where initial start-up costs can run high, businesses will also rely on funding to aid growth and development in later stages. With funding therefore imperative for many, it’s unsurprising that 58% of SME leaders said that being able to access the right funding was one of their biggest concerns.

However, there are key stumbling blocks that businesses have come up against when applying for funding previously. One in five (17%) were told their business was deemed too risky for funding, and three in ten (29%) were told their business did not reach the minimum revenue requirements.

In addition, a quarter (24%) said that the terms offered did not match their needs, two in ten (22%) found the application and approval process too long, and 13% said they didn’t know where to go to access funding.

Indeed, of those SME leaders whose business had previously folded, 15% said that they were funding their business through personal savings, and a further 15% were using a personal loan for their business, indicating that confusion over which finance options to choose could be a driver behind the business’ success or failure.

These findings highlight the importance of specialist lenders in the SME funding space, with seven in ten (67%) of respondents saying that would pay more for a specialist lender that meets their requirements than apply for a high street bank loan.

Neil Rudge, head of enterprise at Shawbrook, commented: “It’s disheartening that so many businesses are folding when there are other options for them, so many could not only survive but go on to thrive. While mainstream, traditional finance providers don’t offer the expertise or appetite to support these businesses, there are a plethora of specialist lenders who can help plug the funding gap.”