SMEs Seeking Alternative Funding Sources

Seven out of ten UK entrepreneurs cite lack of bank funding as the major problem hindering entrepreneurial growth in the UK and are looking to alternative funding models, according to research by RSM Tenon.

The firm’s survey, Lonely at the Top, The Entrepreneurial Challenge found that 72% of entrepreneurs believe problems with bank funding are holding them back, and nearly half want banks to spend more time understanding the goals and objectives of their company.

A third (34%) of respondents say the government should increase pressure on banks to lend to small and medium sized businesses.

However, the report also indicated that new entrants and funding models are coming into the marketplace, with 28% of entrepreneurs reporting increased willingness from private equity firms to provide finance, and 23% saying that equity investors were more willing to offer funding than twelve months ago.

The report highlighted the role of funding by ‘angel investors’ to entrepreneurs, with 23% of those surveyed saying that they had seen an increase in this form of funding over the past twelve months.

Andy Raynor, CEO of RSM Tenon, said: ‘If you want entrepreneurs to create jobs they have to have access to funding. If they struggle to get backing from their banks then they will look elsewhere, but clearly more needs to be done. To hear about new funding sources including business angels is fantastic, but they will not be able to replace banks that have turned out the lights due to capital constraints and market fear.’

The Forum of Private Business has written to Chancellor George Osborne ahead of next week’s autumn statement calling for further tax breaks for private lenders, as well as equity investors, which it says would ease credit conditions for small firms. The Forum also wants the government to do more to increase confidence in alternative sources of finance for low turnover businesses, and introduce tax incentives for alternate lenders.

Phil Orford, the Forum's chief executive, said: ‘The Forum believes one of the key issues facing the UK economy is a business sector lacking sufficient confidence to invest. And while the effect of external market conditions is difficult to control, one action government can take is to set out a clear, financial and regulatory, domestic road map in the years ahead. Above all we recommend the government shows consistency, clarity, and certainty.’