June 20, 2024

Funding challenges holding back £2.4tn of UK SME investment

“This July 4th, the party that can communicate the most appealing pro-growth policies to liberate and support independent SMEs and UK entrepreneurship will win the minds of voters”
– Ryan Etchells – Together

As inflation finally begins to ease, new research from specialist lender, Together, has found that the UK could be on the brink of a potential SME boom with business owners and leaders ready to invest an estimated total of £2.4tn over the next two years, if they can overcome the funding challenges that are currently holding them back.

According to the findings, 65% of SMEs are eager to put at least £100,000 into their individual businesses yet a lack of credit availability is dampening ambitions – with huge implications for future growth in the UK economy.

27% of UK SME owners and leaders stated that a lack of investment breaks and benefits from local and national governments is also restricting business growth potential. Together’s research highlighted that 17% of SMEs are not confident in being able to pursue investment goals over the next two years due to the toughening of lending criteria and heightened cautiousness from mainstream banks (23%), and a lack of understanding of their funding needs (21%).

The research follows the announcement of July’s General Election on July 4th with small and medium-sized business leaders looking to the next government for support and policy change to unlock maximum growth potential. According to Together, such support for SMEs could significantly bolster UK Plc.

The latest Gov business population data shows that there were an estimated 5.5m SME businesses in 2023, contributing a significant 53% of UK private sector turnover. However, this could be increased further still with improved support and a new, attuned administration.

SME concerns

While improved somewhat of late, inflation and borrowing costs are still of critical concern to SME voters in the lead-up to election day, having a direct impact on the state of the economy and general financial and business confidence.

The research shows that in the coming weeks, opposing parties need a clear plan to nurture and maintain the growth of the SME sector. Despite the appetite for support and investment, tougher lending criteria imposed by most mainstream and high street banks still create a funding barrier for well over half of SME loan applicants with a further 55% stating that they have no choice but to identify alternative finance sources or providers in order to fulfil their business objectives.

Top 5 ‘pent-up’ investment priorities for UK’s SMEs

SMEs’ top investment priorities include scaling up production (31%), and increasing headcount (34%) within the next 12 months. 27% are also looking at investing in additional property to support their business expansion this year.

1:Staff costs 34%
2:Scale up production 31%
3:Property 27%
4:Raw materials 20%
5:Plants and machinery 18%

How bridging can help

An increasingly popular way to provide a cash injection is bridging finance – a product specifically designed to help SMEs – and typically provided by specialist lenders.

14% of UK SMEs have used bridging or short-term loans to support growth in the past. By unlocking short, sharp, cash bursts, bridging loans allow business leaders to invest quickly and seize opportunities to expand their business or capitalise on commercial or residential properties.

Ryan Etchells, Chief Commercial Officer at Together commented: “The UK’s 5.5 million small and mid-sized business owners are champing at the bit to realise their investment and growth plans over the next two years.

“This July 4th, the party that can communicate the most appealing pro-growth policies to liberate and support independent SMEs and UK entrepreneurship will win the minds of voters. Further stabilising the dire impact of energy, labour and running costs is a must, as well as ensuring that a new Government understands the specific financial and business needs of the sector.

“While there are early signs that inflation is finally returning closer to the Bank of England’s 2% target, bridging loans will continue to be crucial to maintaining investment activity for SMEs.

“These short-term, flexible loans are proving a more palatable option to businesses as a means of boosting funds for a variety of reasons from paying off an unexpected tax bill, buying raw materials to fulfil a large order or taking advantage of a business growth and expansion opportunity.

“Together expects the bridging finance market to grow by 19% over the next five years as businesses look further afield for agile finance solutions outside of the mainstream lending pool.”

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