27/09/2012

By Edward Winterton, commercial director at Bibby Financial Services

The success rate of businesses applying for external funding over the past 12 months stands at just one in three (32 per cent), with just nine per cent of firms receiving the level of finance they applied for.

In surveying 1,000 UK small and medium-sized enterprises (SMEs) we found a huge shortfall in the level of funding required by the business community and that provided by the finance industry.

Of the firms which applied for funding, as many as nearly one in five (19 per cent) were unable to raise what they describe as, the necessary capital to invest in their business.

Business leaders have come under fire from the Government in recent months, criticised for failing to generate growth, but this claim was flatly rejected by the majority of firms surveyed, with 58 per cent blaming the coalition for failing to provide an environment that encourages growth.

In fact, 23 per cent of business owners and managers feel the small business community is doing all it can to drive the economy forward, with 25 per cent calling for a reduction in red tape and unnecessary regulations to stimulate activity.

Alongside access to finance, the rising cost of fuel is a major problem for small firms, with 33 per cent reporting that fuel hikes have restricted cash flow and lead to business instability. This was closely followed by the level of taxation (27 per cent) and the impact and associated cost of employee rights (17 per cent).

The findings of the study clearly highlight the size of the gap between funding supply and demand. Businesses desperately require greater access to finance as schemes introduced by the Government to address the issue have so far failed to work.

Over the past few years we have seen a raft of different funding schemes and initiatives introduced, such as Project Merlin and the National Loan Guarantee Scheme, however none have delivered real and lasting benefits to the small business community.

The National Loan Guarantee Scheme, which launched just six months ago, has now been superseded by ‘Funding for Lending’. The new scheme launched by the Government earlier this month aims to make cheaper loans more readily available for small businesses, but the Government’s insistence to channel funding streams through the banks must be brought into question.

With so many businesses unable to obtain the level of funding they require, how can the Government call on them to be the drivers of growth within the UK economy?

The Government must recognise there is a need to reduce the number of businesses relying solely on the banks in order to ease the overall flow of funding.

The banks will not be able to solve this problem on their own, it will rely on traditional and alternative funding providers working together to provide tailored, collaborative solutions that pool different products and services.