UK SMEs that are looking to boost the size of their operations are in need of more focused support to help them choose the correct avenues for finance, according to a new study.
In the 2017 SME Finance Monitor from specialist research unit the ScaleUp Institute, the body’s CEO Irene Graham notes that, while smaller firms are generally happy with the idea of using outside funding to back expansions, their uptake is not as high as it could be.
She writes: “Although scaleups are more willing to use external finance to help them grow, four out of 10 choose not to access it.
“It demonstrates that scaleups require confidence and support to help them in their growth journey. There is a clear need to ensure that business leaders can access finance and understand their available options.”
As such, Graham argues, it is “important to increase the provision of education on growth finance” so that scaleup leaders “can structure their companies appropriately”.
She adds: “Scaleups are not just looking for cash – they want smart money that brings knowledge and support along with it.”
The Monitor defines scaleups as SMEs that reported turnover growth of 20% or more in the year up to its publication, and in each of the previous two years.
It uses the term ‘aspiring scaleups’ for SMEs that have grown by 20% or more in the past year – but not in the previous two – and are planning to grow by at least 20% in the year ahead.
According to the Monitor, one-third of scaleups are dependent upon one or more touchstones of ‘core finance’ – such as overdrafts, credit cards or one-off loans.
Aspiring scaleups are more likely (41%) to be using those forms of finance, and have a particularly higher reliance upon overdrafts.
Taking personal finance and trade credit into account, 71% of scaleups and 72% of their aspiring counterparts are harnessing a broad range of business-funding options other than steady streams of external finance.
The Monitor notes: “Attitudes to finance among scaleups are not that different to their peers, with the exception of their willingness to use finance to help the business grow.” That stands at 55% of scaleups versus 42% of SMEs outside the scaleup and aspiring categories.
However, the report reserves the tag ‘permanent non-borrowers’ for any SMEs that “are not using finance and have shown no appetite to do so”. The Institute’s research shows that 39% of scaleups currently meet that definition – with the figure rising to 46% among non-scaleup and non-aspiring SMEs.
In her own contribution to the Monitor, Rebecca McNeil – COO of Barclays Business Bank and chair of the Commercial Product and Service Board at UK Finance – writes: “This report gives us useful further indications about how the banking industry can interact with other players in the financial ecosystem to really ‘lean in’ to help scaleups.
“The banking industry currently supports scaleups with a range of loan and debt finance products, as well as through the establishment of new finance vehicles, such as the Business Growth Fund, Venture Debt [and] British Business Bank.”
However, McNeil notes: “it is evident we can collaborate even more with equity finance providers and emergent fintech companies so that we can provide joined-up support for scaleups, as well as comprehensive and timely education about the finance options available to them.
She adds: “This report has given us further insights to our scaling businesses, which we can act on – including the importance of getting timely guidance – which we will consider further as we evolve the services offered under Mentorsme.