Lack of funding 'putting small business growth at risk'

Growth of smaller firms in Scotland is being put at risk by a lack of funding.

Merchant banking group Close Brothers found that 21% of small and medium-d enterprises (SMEs) had been turned down for finance or credit.

Close said over-reliance on overdrafts was still a concern, while 31% of Scottish SMEs had used personal savings to grow their business – the highest proportion in the UK.

A lack of access to the right funding means many firms are resorting to funding options that risk restricting their growth.

Nearly three in 10 Scottish SMEs had used overdrafts to grow their business, with 17% resorting to credit cards.

Difficulties

Colin Borland, head of devolved nations at the Federation of Small Businesses (FSB), said recently that his organisation's members know how difficult it can be to secure finance.

He added: "Whilst many small businesses are ready and keen to grow, they face a mountain of challenges. Barriers like an unwillingness among the big lenders to take on ‘young’ companies with a higher risk profile; limitations on early stage equity funding; and smaller businesses being unaware of alternative lending competitors can all stop small firms from accessing much-needed finance.

"A lack of awareness of the options out there can often be the biggest challenge for smaller businesses. Whilst our survey results show that progress has been made, with 48% of SMEs having an awareness of six alternative finance options, there is always more than can be done."

Mr Borland said the big four banks dominate the smaller business finance market in the UK – in Scotland it’s even more concentrated as there are only two main players.

Shop around

British Business Bank research showed that over half of UK smaller businesses don’t shop around for finance, instead opting to go with their current account provider. 

Mr Borland said for some small businesses this won’t be a problem, but, for others, bank finance may not be what their business needs. The same research found that around half of those businesses rejected for a bank loan will stop looking for finance. This means the loss of potential expansion and job-creation opportunities, with adverse knock-on effects for Scottish economic growth.

A growing number of finance options have become more mainstream and accessible to smaller businesses over the years, such as crowdfunding.

The FSB has now partnered with the British Business Bank to make a guide to help navigation of finance options freely available to its members.