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Infographic: Why Business Growth Is Essential To Great Britain

Small and medium-sized businesses are paramount to the economic well-being of Great Britain. SMEs are ready, willing and able to grow, but lack the funds to be able to do so. Many have tried, and failed, to acquire capital through traditional avenues. There are alternative methods for business financing that are available, but unfortunately, many business owners are not aware of the options available to them.

UK GDP Infographic

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Great Britain Needs SMEs

Why SME Growth Is Essential

The SME Landscape

SME financial health and ability to grow affects the country at large. 4.9 million UK businesses employ 24.3 million people and have a combined turnover of £3.3 trillion. Ninety-nine per cent of the 4.9 million businesses are SMEs. SMEs employ 81.6 per cent of the UK workforce.

Economic Indicators

SMEs added £473 billion or 49.8 per cent of the UK economy. Between 2001 and 2013, relative contribution to overall GDP from key sectors (retail, manufacturing, construction and hospitality) declined by £31.9 billion. That’s enough money to purchase an iPad for every person in the UK with a £36 case and purchase the Manchester United, Arsenal, Chelsea, Manchester City and Liverpool football clubs.

Why The Drop In GDP?

  • From 1997 – 2007, private sector debt almost doubled.
  • In 2008 and 2009, the UK economy suffered its deepest recession since the 1930s.
  • Prior to 2013, recovery was slower than expected due to lasting effects of the financial crisis, stubborn inflation and deterioration in key export markets.

Despite The Economy, SMEs Want To Grow

45% of SMEs plan to grow in the next 12 months. All SMEs, excluding those with 0 employees, improved growth prospects in 2013 and 2014. Appetite for growth is stronger (and increasing) amongst larger SMEs.

But They Lack The Funding To Do So

Lending to UK SMEs has declined by 6 per cent or £2.6 billion from 2008 to 2012. Twenty-three per cent of SMEs consider external finance an obstacle to business operations. Seventy-nine per cent of SMEs said a previous decline for finance made them reluctant to apply again. Thirty-six per cent of SMEs cited the process as their main barrier for not seeking finance.

Three behavioral barriers linked to failure of securing capital:

  • A lack of awareness of alternative sources of finance
  • A lack of financial expertise required to assess alternative sources for a borrower.
  • A lack of confidence in ability to secure alternative forms of finance.

Fifty-five per cent of loan applications made Q4 2012 to Q1 2014 resulted in a facility. Thirty-three per cent of SMEs used external finance in Q1 2014. This is the lowest level to date. Sixty per cent of SMEs claim to spend less than one hour researching lending providers. Seventy per cent of SMEs approach only one provider without considering alternatives.

Fortunately, there are other ways for SMEs to access the capital they need…

Alternative Finance Solutions

The UK alternative finance sector grew by 91 per cent from £492 million in 2012 to £939 million in 2013. Despite this growth, it continues to account for a very small share, around 1 per cent of the total lending to SMEs.

Eighty-two per cent of SMEs are not aware of alternative business funding options.

Unsecured Short-Term Business Loans

  • How It Works: Short-term business loans provide quick access to capital, repaid over months rather than years.
  • Ideal For: Businesses that need working capital to fill a cash flow gap, often to take advantage of a time-sensitive opportunity.

Invoice Factoring

  • How It Works: A third party agrees to buy an enterprise’s unpaid invoices for a fee.
  • Ideal For: Larger companies that have generally higher sales amount.

Asset-Based Lending

  • How It Works: Borrower is able to leverage their assets (receivables, real estate, inventory, and equipment) to secure lending.
  • Ideal For: Companies with sufficient receivables and inventory.

Peer-to-Peer (P2P)/Crowdfunding

  • How It Works: Bypasses traditional lending institutions by matching up those with money to lend with individuals or SMEs that need to borrow.
  • Ideal For: Businesses with a large social media network or passionate consumer-base.

Merchant Cash Advances

  • How It Works: Future card receivables are purchased at a discount in exchange for capital today.
  • Ideal For: Businesses that have a high volume of credit card sales.

Pension-Led Funding

  • How It Works: Existing pension funds are transferred into a pension contract to facilitate funds.
  • Ideal For: Business owners with a large pension pot and a sound business plan.

Grow your UK small business with an alternative finance solution from Boost Capital.