Investment and growth intrinsically linkedThe rise in permanent non-borrowers, which hit 48 per cent in Q1 2015 to overtake the number of small businesses using external finance, could be seen as a positive in terms of small businesses being more cautious over expenditure and not wanting to take on debt. But, generally speaking, it takes money to make money and a lack of borrowing can also be an indicator that aspirations for growth are on the decline with businesses showing a reluctance to invest. This view is backed up by the Organisation for Cooperation and Development (OECD), which last week warned that tepid business investment has contributed to a global low growth spiral and more measures need to be taken to encourage businesses to boost their investment, in particular on new technology. A business is only able to grow when it has access to the right resources, such as short-term loans. When this is not the case a common theme of issues tends to arise. In a recent independent survey we conducted, 49 per cent of small business decision makers said that their business has cash flow problems at least a couple of times a year, with 13 per cent saying they have issues approximately once a quarter . A lack of working capital was deemed to be the biggest obstacle when trying to grow their business with 42 per cent saying it was detrimental. A quarter (26 per cent) agree that their business growth has been restricted due to lack of access to cash from traditional lenders or unwillingness from traditional lenders to loan to small businesses. With the BDRC reporting a downward trend of small businesses investing personal funds into their business (from 46 per cent in Q3 2012 to 26 per cent in Q1 2015), this brings into question where growth will come from.
Narrowing the gapDespite the majority of SMEs meeting the BDRC Continental’s definition of “happy non-seeker of finance” over the last 12 months, a third (36 per cent) did still say they’d ideally be debt-free but are prepared to borrow to help their business grow. At the same time, the gap between small businesses using core forms of finance in Q1 2015 (29 per cent) such as loans, overdraft, credit cards and other forms of funding such as invoice finance (16 per cent) has narrowed. This is an encouraging indicator that small businesses are starting to shop around for the best finance to suit their business needs, rather than defaulting to traditional lenders. With so many more finance options in the market, it can be confusing to know what form of funding to choose, from business e-lenders to peer-to-peer lending. It’s only through making SMEs aware of all their options that small businesses will feel more confident about investing in growth, knowing they have access to the right working capital when and how they need it. Russell Gould is COO of small business e-lenders, Everline and ezbob. Everline and ezbob offer customers a simple, frictionless and transparent process. Using up-to-date business data and innovative technology to make responsible, real time, automated risk decisions, ezbob and Everline have collectively provided over 6,000 business loans and lent over £60m to UK small businesses since their inception in 2012.
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