Two-fifths of small-to-medium sized businesses (SMEs) that have applied for finance over the past 12 months have been rejected, new research finds.
But the report by UK venture capital investor Albion Ventures found that just 17% of SMEs had attempted to raise money over the past year, suggesting that most either have no financing requirement or rely on other sources of funding, such as family and friends.
Of those that have tried to raise capital in the past 12 months, more than one in four (28%) SMEs were looking for long-term development capital while under a third (32%) wanted working finance to keep their business going.
The largest demand for working finance was from sole traders, accounting for 62% of applications. The research found that companies with a larger turnover had fewer problems getting access to finance.
Regionally, companies in the North were most likely to see raising finance as a threat to their business while it was seen as a minimum risk in London, where sources of finance tend to be more accessible. On a sector basis, manufacturing businesses were most concerned about how a lack of access to finance would impact on their growth potential, followed by retailers.
The report also revealed that a company’s attitude to raising finance was affected by whether it had an optimistic or pessimistic outlook to its future growth prospects. Nine out of 10 pessimists wanted to secure finance to pay day-to-day bills compared with less than two-thirds of optimists, suggesting that many companies are relying on debt to keep themselves alive.
Nearly all pessimists applied for a bank loan or overdraft while optimists applied for a number of different finance options including equity, mezzanine and invoice discounting. Furthermore, optimists are much more likely to seek finance in order to develop their business, invest in new equipment and build new products and services.
Patrick Reeve, managing partner at Albion Ventures, said: “Given that SME cash deposits have been net positive throughout the financial crisis and are continuing to grow, it is perhaps not surprising that only one in six SMEs has attempted to raise finance in the past year. It is commonly perceived that a shortage of finance has become inextricably linked to the fate of smaller businesses, yet the evidence from our report indicates that policymakers should avoid focusing on this issue at the expense of other areas that firms are more concerned about, notably red tape, regulation and a shortage of skilled staff.”
Sally Percy is editor of The Treasurer