Small businesses ‘too dependent’ on traditional forms of finance

Owners and managers of the nation’s small business community are too dependent on traditional forms of finance and could be putting themselves at risk in times of economic uncertainty, according to new research.

The annual Bibby Financial Services survey of business finance specialists reveals a tendency for SMEs to rely on traditional forms of finance, with 45% depending on bank overdrafts, 25% on bank loans, 8% on their family and friends and just 15% on alternative funding such as invoice finance.

The survey suggests that one in four (27%) UK SMEs have a ‘poor’ or ‘very poor’ understanding of the finance options available to them – a worrying statistic considering nearly two thirds (59%) of financial advisers believe the current economic climate will make banks enforce stricter lending criteria, making it harder for owners and managers to access traditional forms of finance.

David Robertson, chief executive of Bibby Financial Services, said: “With small businesses under pressure due to economic slowdown in many sectors, rising interest rates and the potential implications of the global sub-prime lending ‘credit crunch’ hanging over them, the need to swot up on alternative finance to improve cash flow and help growth has never been stronger."

“The best way to fully understand the complete range of funding options is to seek independent advice, rather than making the bank the first port of call. The alternative finance market has matured in the past few years and there are now a number of solutions ideal for many business sectors that can help improve day-to-day cash flow and aid growth plans.

“Those who invest the time and effort in seeking the right solution for their business will be in the best position to weather any storms ahead and be one step ahead of the competition in securing their share of their market.”