According to the Albion Growth Report, 44 per cent of small and medium-sized businesses that sought finance for development over the past 12 months have been successful – that’s up from just 27 per cent in 2014.
Of the firms to secure capital, 29 per cent of companies invested in new equipment and 26 per cent spent funds on producing new products and services.
Meanwhile, just ten per cent wanted to raise money to invest in R&D, which is considered a driver of long-term success. It backs up a report from November, which found London’s small firms want to increase R&D plans but feel they lack the innovation and skills required to do so.
Paul Evans, area director, SME Banking in London, Lloyds Commercial Banking, said: “What we’re seeing is a growing determination amongst London’s small and medium sized firms to innovate in order to drive competitiveness and secure their long-term success.
“The scale of the challenge, however, is equally clear. Unless we provide access to the talent necessary to deliver that innovation, we run the risk of missing an enormous economic opportunity.”
The Albion study said that bank loans and overdrafts fell to a popularity of 49 per cent in 2015 from 76 per cent in 2013. Comparatively, the decision to opt for third party equity and other long-term finance options rose to 34 per cent this year, from just six per cent two years ago.
However, 18 per cent of SMEs said they is still a problem with lack of access to finance and that rose to 32 per cent among mid-sized firms with turnover of between £500,000 to £1m.
This is in line with CBI director-general Carolyn Fairbairn calling the UK’s mid-sized businesses (MSBs) the country’s “missing link”. She praised the sector’s £59bn contribution to the economy and urged the government and investors to provide more support.
Meanwhile, entrepreneurs aged under 35 were found the most likely to reveal issues raising capital with 28 per cent citing difficulties compared to 15 per cent of those aged over 55 per cent, Albion revealed.
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In terms of sectors, manufacturing firms are most likely to seek equity finance at 43 per cent, followed by IT and telecoms with 40 per cent. Construction was least likely with 19 per cent.
According to Albion, the top five reasons for looking for finance are:
1. To develop the business – 44 per cent
2. To keep the business going (i.e. working finance) – 30 per cent
3. To invest in new equipment – 29 per cent
4. To invest in new products and/ or services – 24 per cent
5. To invest in technology – 17 per cent
“The UK economy continues to strengthen, providing excellent growth opportunities for UK businesses. Concerns about access to finance have given way to shortages in skilled staff and insufficient management expertise,” said Patrick Reeve, managing partner at Albion Ventures.
“It is a hugely optimistic climate, and we should be encouraged by the revelation that such a high percentage of firms are looking to raise finance to grow and innovate. There is also a clear trend toward non-bank lending such as the popularity of bank loans and overdrafts have continued to fall.
“What is particularly welcome is the emergence of the ‘Dragon’s Den generation’ – those under 35 who embrace an equity culture.”
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