The lifeblood of the UK economy is undeniably its small businesses, the engine of growth and innovation, yet they often find themselves grappling with the complex labyrinth of external finance.
As we approach the midway point of 2023, the echoes of the recent global crises – the pandemic’s upheaval, the Russian-Ukrainian conflict, and the looming shadow of inflation – add another layer of uncertainty to their financial trajectory.
Given their scale, these businesses seldom have a cash surplus at their disposal for expansion or investment, making external funding paramount.
Historical patterns suggest that in the face of economic strife, as we are now, lending to small businesses might continue to constrict, painting a picture eerily similar to the post-2008 financial crash.
The Impact on Small Business Funding Needs
Small businesses across the UK are now shouldering a burden of debt that casts a long shadow on economic growth.
This burden is unevenly shared, with sectors hit hardest by lockdown measures bearing the brunt.
Needless to say, the rising tide of debt is a pressing issue that demands the attention of both the government and financial institutions.
The decisions made today, will inevitably shape the future demand for external finance and debt among small businesses.
However, there’s no magic bullet, no universal remedy to address the financial needs of this diverse segment.
The existence of a broad spectrum of lenders and financial products can enhance market efficiency.
Yet, the complexity of these options can often leave the average small business owner feeling overwhelmed, hindering their access to much-needed finance.
The UK’s Net-Zero Target
With only a small proportion of businesses planning to make green investments in the near term, the march towards the net zero target seems to be faltering.
In the face of current economic volatility, businesses are likely prioritising immediate growth initiatives or cost savings over long-term returns from green investments.
To realign businesses with the net zero objective, government incentives for green investments are crucial.
Small Businesses Struggling to Obtain Working Capital
The trajectory of small businesses’ access to finance is also marked by a worrying trend in the success rate of applications.
Small Business Index data from the Federation of Small Business (FSB) reveals a shocking drop to an all-time low of just two-fifths of applications since the pandemic-induced peak in mid-2020.
However, this statistic alone doesn’t encapsulate the spectrum of challenges faced by small businesses when seeking finance.
Acquiring finance poses a unique set of hurdles for each business, and the type of finance sought plays a significant role.
Traditional bank loans, often perceived as synonymous with small business finance, are deemed the second hardest to obtain, surpassed only by equity.
The complexities of long application processes and a lack of human interaction are the primary obstacles encountered.
To bridge this financial gap, small businesses need robust support from the government and funding opportunities offered by alternative lenders.
We must ensure that the credit tap doesn’t abruptly run dry as it did in the aftermath of the financial crash.
Small businesses access unsecured, fast funding from Got Capital. As an alternative lender, Got Capital offers financing solutions specifically designed for and catered to the needs of SMEs.
