UK businesses face a major funding crisis, ArchOver finds, with 34 per cent saying late payment has caused their business to fail
British companies are facing a funding crisis because banks are not supporting the future of UK PLC. Businesses desperate for finance to support their growth are only receiving on average 70 per cent of the agreed loan – which means over a third (37 per cent) are unable to launch a new product or service as a result.
Research commissioned by ArchOver, which reviews the funding landscape for UK businesses in the last year, has found that one in five companies are being rejected for a loan by banks, and of those 17 per cent were put off or unable to apply for any further loan, crushing the entrepreneurial spirit of UK SMBs.
The research also identified the catalysts for companies requiring additional financing and what type of loan they secured.
More than two in five (43 per cent) were prompted to seek finance in order to fund digital transformation, whilst 39 per cent needed a loan facility to fund the move to a new premises or purchase new equipment. More worryingly, over a third (35 per cent) of businesses required credit to cover short-term cash flow issues – a threat to their ability to function overall.
ArchOver discovered that part of the reason for this is that companies are facing an epidemic of late invoice payments, causing cashflow problems that are compounded by the lack of bank support. Less than one in twenty respondents (under 5 per cent) said their invoices are paid on time all the time. Just under half of them (49 per cent) said they receive fewer than half of their invoices by the due date.
That’s pushing many into the arms of dangerous financing options. Four in five (81 per cent) of businesses have considered using invoice discounting to fix their cashflow problems. But over-promising is built into invoice discounting. The same amount of respondents (80 per cent) said their business is now over-dependent on invoice discounting – like opium, it provides a quick hit, but at the cost of addiction and long-term expense.
Conversely, nearly six in ten (58 per cent) of those who’ve used invoice discounting now believe peer-to-peer (P2P) lending is safer, and 54 per cent believe they can obtain a better rate on their loan with a P2P provider than through a bank.
“The funding system for UK businesses is broken”, commented Angus Dent, CEO. “2018 was a tough year to be an SME to say the least, but companies aren’t bowing down just yet – despite the best efforts of the banks. Our research shows that despite their optimism, high-growth companies are being turned away time and again by big funders who, we’re told, have postponed all decisions on sub-£10m loans until after 29 March. That businesses have to run into the arms of unscrupulous invoice discounters to find cash is an indictment of the finance industry’s treatment of British business.
“Brexit is about to make the funding picture even harder for businesses. But there are options that won’t ignore you or suck you dry. If they want to keep growing in 2019, UK companies need to look for financiers who’ll get to know them deeply and support them through the storm – not just make a quick buck from them.”
To read the full report, please visit the report website.