Number of SMEs on the increase but then what?

As the UK economy hits hard times and redundancies, pay reductions and unemployment rises, one might expect to see a fall in the number of registered companies. However, the opposite is happening; the UK has seen a surge in the registration of new companies in the last year. Research by Creditsafe found that there was an 18% increase on 2010.

It is thought that university leavers finding it hard to secure employment and those being made redundant have decided to go for it and open up business for themselves. Initially this seems like a very positive move and could help with the UK recovery but looking at what we already know about small-to-medium sized companies (SMEs) it may be just another route to the same old issues.

Online lender borro.com found that 24% of SMEs claim to have missed out on growth opportunities due to the lack of accessible finance, and it was widely reported in the financial press that realistic finance was not available to SMEs.

This is further confirmed by the figures released on Project Merlin. Merlin was a pledge made by most of the high street banks to lend £190bn to businesses in 2011, £76bn of which to go to SMEs. At the end of the year it was expected that they would fall short of the SME target by over £1bn. Also they classified an ‘SME’ as a company with a turnover of less than £25m. This implies the lending that did get approved may not have even reached the smaller businesses where it is most needed.

However, the SME Finance monitor found that many SMEs knew there was finance available but did not follow through with the application process; as they did not wish to be tied into repayments when the coming year looked uncertain. They chose instead to use their own funds or ask friends or relatives to assist with additional capital.

This was confirmed by the findings of borro.com who found that 57% of SME owners had used their own funds to inject capital into their business. They also found that 66% of SME owners lacked confidence in their bank and were unsure whether their bank would lend to them. Only 19% of those surveyed had actually attempted to secure bank finance in the past year and only 31% of those had been successful.

So it may be a positive sign that more people are confident enough to start up a new business in the face of uncertainty, but how long will it be until these start-ups require some finance?....what happens then?

When considering finance options the best thing to do is speak to your accountant/business advisor who can provide guidance and advice on the relevant options available. There are various routes to explore, so make sure you are well informed before using your own funds or assuming finance is not available at all.

For further information or advice on this topic please visit http://www.wardwilliams.co.uk/