Too many people are struggling to find finance for their businesses. Why is this?
A recent Parliamentary report on SME Finance found that “2024 is a difficult time to be an SME seeking finance” and that the situation has worsened in the last six years. In 2023, the acceptance rate for an SME applying for finance fell to around 50% (from 80% in 2018). If you bear in mind that SMEs make up 99% of all UK businesses, that means that nearly half of those who apply for finance are getting rejected.
It’s a worrying thought. SMEs are the backbone of our economy, many of which are startups that often rely on finance in their early years so that they can invest and grow to become successful.
Not only are SME’s struggling to find finance, many have become pessimistic about approaching lenders. This seems to be for two reasons. Firstly, there is a lack of trust in lenders and secondly, SMEs are worried about having their applications rejected. Finance acceptance rates for SMEs from high-street banks have been falling ever since the global financial crisis.
The report makes for depressing reading, even going as far as to suggest that many smaller businesses had given up on looking for growth (which has big consequences for the whole of the UK’s economy, affecting everything from our productivity to our employment levels). Recent economic turbulence has also caused problems for hard-working businesses, with many worrying about high interest rates affecting their ability to afford finance as a way of funding investment.It’s clear that too many businesses have just lost faith in the commercial finance industry. At Origin Finance, we share their frustration — especially as we know that it doesn’t have to be this way.
Businesses don’t realise there are other options
One of the most interesting parts of the report was that only 5% of SMEs would consider looking for another lender if their own bank rejected them. The reason given for this shockingly low figure was that many SMEs aren’t aware that there are alternative finance providers on the market who might be able to help them secure the funding they’re seeking.
An “alternative finance provider” is essentially any lender that isn’t a high-street bank. Alternative finance providers can have more flexible lending criteria than high-street banks, making them an option for any SMEs that have struggled to get finance through traditional channels. Many of these are specialists in specific areas, such as providing funding for startups and SMEs. Some may even aim their services towards certain industries like construction, agriculture, etc. Other lenders will also offer more tailored solutions like Equipment Finance, Invoice Finance and Refinance. There is also the potential for securing lower rates than traditional banks.
The benefits of using a finance broker
The SME Finance report gives two main reasons why SMEs might struggle to secure finance, and using a broker can potentially overcome both of these.
Firstly, a business may have been rejected by their usual bank and not known that there were other options available to them. Believe it or not, there are actually hundreds of finance lenders in the UK — not just the big-name banks. However, nearly half of these lenders will only accept applications that have come via a broker.
Secondly, a business may not be able to afford the rates offered to them by their usual bank. Using a broker gives you a full view of the market, allowing you to look beyond your high-street bank and secure more competitive rates and better terms for your business.
How Origin Finance can help
The finance sector needs to do much more to help SMEs. But there are options out there for ambitious businesses looking for funding.
At Origin Finance, we’ll work hard to improve your chances of successfully securing funding. We do this in several ways.
We start by taking the time to get to know your business. By learning about what drives you and your plans for the future, we’ll be able to present the most suitable financial option(s) for your situation. And every lender is different. They each have their specialist criteria, and some will have a specific lending niche. We’ll use our market knowledge to match your business to a lender who has a track record of providing funding for similar companies so that they’ll understand your needs. We’ll also make your application shine. We know what lenders are looking for, so we’ll do all the paperwork to present your business in the best possible light.
Looking for funding for your business? We’d be happy to have an informal chat about your finance options. Get in touch today.
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