Please Mind the Gap! | Blog | Foundation East
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Please Mind the Gap!

Did you know that, even though SMEs make up 99.9% of all private sector businesses in the UK, 60% of private sector employment and 47% of private sector turnover,there is an SME funding gap in the UK? Did you know that this funding gap exists, even though there are at least 17 different type of finance SMEs could turn to? Do you think that, if SMEs could go to one single online portal to access information about all of these potential sources, the gap would close? I do, and I encourage LEPS to work with the Responsible Finance industry to make this happen …

 

Did you know that SMEs make up 99.9% of all private sector businesses in the UK, 60% of private sector employment and 47% of private sector turnover?

Yet, in spite of their economic impact, there is a real funding gap for SMEs, as evidenced by the independent think tank Civitas’ report at the end of last year, and picked up on by many mainstream papers, from the Times to the Daily Mail.

Did you know there are at least 17 potential sources of finance for SMEs?

When an owner of a SME (existing or potential) needs finance to help them set up or grow, they are often not aware of all sources they can turn to. With local bank branches closing down and less and less SMEs actually having a local bank manager to turn to for advice (whilst speaking to your bank manager first will always be a good idea, the increasingly online nature of business banking makes this difficult) there is an increasing need for a reliable and trustworthy portal of information for entrepreneurs to access about all things SME finance.

When you consider that there are at least 17 main types of financial sources SMEs can turn to, each with its own complex sub group, such a need can be viewed as profound.

Potential sources of finance for SMEs 

  1. Own funds, friends, fools and family
  2. Credit cards
  3. Bank loans
  4. Bank overdrafts
  5. Asset based financing
  6. Mortgages
  7. Business Angel investments
  8. Equity investment
  9. Venture Capital
  10. Crowdfunding
  11. Peer to peer lending
  12. Revenue based lending
  13. Suppliers/Customers
  14. Employees (as shareholders)
  15. Factoring/invoice discounting
  16. R&D Tax Credits, patent box
  17. Grants
Exploring these options is needlessly complex and time consuming, because, whilst there are many searchable databases of available sources of finance, there is not a ‘single’ source that provides information about all potential options. Add to this plethora of funding routes the variety of different business types and situations (and reasons why they want funds) and matching requirement to option becomes even complicated.

Databases that do exist are not applicant focused. They require skill, persistence and a significant degree of understanding in order to filter results in search of the two or three most appropriate options to individual business needs. Even professionals, such as accountants and business advisors, struggle to keep their skills and their knowledge up to date.

And whilst, as reported by Katy in this blog recently, there are at least three new banking referral schemes now in operation, with talk of more to come, these do not come with expert tailor-made, application specific advice, so, again, are not exactly customer focused and do not help to educate applicants about why they were (or were not) accepted and what they could do differently to ensure better funding options in the future.

What is needed is a self-diagnostic, applicant focused, easy to use online solution that takes into consideration the complex nature of the diagnostic process for access to finance decisions and the quality of applicants’ business plans. Such a solution would need to inform businesses about the diversity of funding sources and to facilitate the development of a clear focus on the optimum route to a solution. It could actually be as simple as some HTML add-ons to existing LEP online resources (supported by ongoing maintenance, review and updating).

Come on LEPs across the East of England and beyond, isn’t it time to disrupt the status quo and mind the SME funding gap? And, given the Civitas report, doesn’t it make sense to do so with your local Responsible Finance provider?


  • About the Author

    David Martin

    David joined Foundation East in 2012 and contributes to various committees drawing on his experience in both the private and public sectors. The last 18 years of David’s career has been at CEO level in the Engineering and Manufacturing industry. Prior to this he had a very successful career in Finance and Marketing. Among other roles, David is a fellow of the Institute of Consulting and a proprietor with Commend Business Development, which helps SMEs in the East of England grow and develop.