Report from Albion Ventures reveals only 10% of SMEs tried to raise finance in past year – but those that did had their eyes on expansion
With GDP recently rising to above pre-recession levels, the government has had plenty to smile about. However the news wasn’t welcomed quite as warmly by the UK’s small business community. There’s a feeling that economic indicators like GDP are something for the establishment to point to as a sign that things are on the up whereas, ultimately, they don’t really paint the whole picture for SMEs.
More encouraging are the signs suggesting that SMEs have their eyes firmly set on expansion – such as the latest report from Albion Ventures, the venture capital firm. The company’s second Albion Growth Report reveals that over a quarter (27%) of firms raised finance over the past year to develop their businesses and an additional 23% to expand their premises. These are both up on last year’s figures of 26% and 5% respectively. The report also reveals that only 24% of SMEs are seeking credit to fund working capital – down from 32% last year – suggesting that firms are far more confident about their growth prospects and less concerned about struggling to pay the bills on time.
And, despite what’s been said about them of late, it seems banks are starting to treat small businesses more hospitably again. Albion’s report shows that the success rate among SMEs applying for loans has risen to 80% in 2014, up from 71% in 2013. However, it’s worth noting that this is actually a higher proportion of a smaller amount of businesses, as only one in ten SMEs tried to raise finance in the past 12 months, compared to 17% last year.
Furthermore, the percentage of SMEs’ borrowing or funding done through bank loans or overdrafts has fallen significantly over the past year from 76% in 2013 to 62% in 2014. Firms have also relied less on asset-based leasing, invoice discounting and credit cards. The report nevertheless goes on to show that other lending methods including mortgages (7%), cash loans from friends and family (5%) and equity investments from venture capital and angel investors (6%) have a long way to go before they catch up with traditional bank loans.
“Demand for bank finance and the reasons for needing it are key proxies for the health of UK SMEs and there are reasons for optimism on both counts,” said Patrick Reeve, Managing Partner at Albion Ventures. “Not only have firms been more successful in applying for finance but their motivations are more about growth than funding working capital.
“Demand for finance is particularly strong among the growing band of so-called ‘threshold’ businesses with turnovers of between £500,000 and £1m, which are on the cusp of becoming established companies. Twice as many of threshold businesses attempted to raise finance in the past 12 months and 68% of them needed capital to grow compared to 41% of other types of SMEs.”
We firmly believe that stats like this give a far clearer indication of where things are headed for our beloved small businesses. And it all looks positive as far as we’re concerned.