SMEs shun high street banks in favour of alternative funding
British Businesses are shunning the ever-increasing restrictions placed on them by high street banks in favour of cash and alternative forms of finance. Only 13% of Small Businesses in the UK relied on the standard high street bank to finance their business in the last 12 months according to Hitachi Capital’s quarterly British Business Barometer.
With the need to protect businesses from bad debt, ensure a positive cashflow and retain the ability to operate, the research found that SME’s are looking to alternative forms of finance, with almost one in four businesses (23%) moving to asset finance, operating or finance lease. In addition, one in two businesses (54%) continue to inject their own cash into the business.
Interestingly, it’s not just the new era of small businesses that are open to different forms of funding – asset finance has been the main source of finance over the last 12 months for businesses with a turnover between 1-10million (44%), and while start-ups rely predominantly on their own cash in the first year of trading (86%), companies with a turnover of £10m+ are spreading their finances with 40% relying on cash, 33% on asset finance, 32% on a standard business loan and 30% finance their business via an overdraft.
Forms of finance used in the last 12 months by quarter:
The research from Hitachi Capital Business Finance’s quarterly British Business Barometer, asked 1,000 small businesses in the UK, what forms of finance their business has used in the past 12 month compared with Q4 2014.
By Sector
There are significant variants via sector, and while cash is predominantly the first choice interestingly, the standard high street bank loan lags significantly behind the alternative forms of funding available to businesses:
Manufacturing
Although the manufacturing sector has mainly used cash (40%) to finance their business in the last 12 months, this sector has relied more on the traditional high street bank loan than any other sector, with almost one in four (22%) opting for this source of finance over the last 12 months.
Transport and Distribution
Asset finance (64%) was the main finance of choice over the last 12 months, with only 22% opting for funding via the high street bank.
Construction: This sector relied more than any other sector on overdraft (35%), although 13% said that they had to use family money over the last 12 months.
Agriculture
This sector relied heavily on funding via Government support (21%) and less so on asset finance than any other sector (14%).
Gavin Wraith-Carter, general manager at Hitachi Capital Business Finance said: “It’s encouraging to see that SME’s are showing a greater confidence in the UK economy and finding the impetus they need to drive growth for their business. Key to supporting this drive is providing the funding they require to achieve their ambitions. For too many years, small businesses have been hindered by the restrictive terms imposed by UK banks and, as the research suggests, alternative forms of finance are becoming a vital life line to achieve continued expansion.”
