16/06/2015

By Patrick Jelly, Pitney Bowes Global Financial Services & UK SMB Solutions Managing Director

Britain’s 49 million small businesses make a substantial contribution to our economy, employing around 52% of the UK’s workforce and generating almost half the UK’s turnover. Across Europe, small and medium-sized enterprises (SMEs) have even more impact: in Germany, 62.7% of employees work for small businesses, and in France this figures rises to 63.9%.

Cash flow is the lifeblood of these businesses, as they need to invest in people, physical and digital solutions and processes to drive growth, increase revenues and improve service. And it isn’t just the big ticket items that impact cash flow. In fact, research shows that smaller items can result in unexpected costs: 13% of SME owners spend unexpected amounts on stationery and printer ink and 9% are surprised by their phone bills.

Combine the need for free cash flow for SMEs with the contribution they make to our economy, and it would follow that SMEs have ready access to funding, but this isn’t necessarily the case. 40% of UK small business have been refused a loan from high street banks, and for every £100 UK banks lend, only £26 goes to small businesses. Research by Money&Co identified a significant SME funding shortfall, and revealed a funding gap of £4.3bn based on funding applied for and funding received.

This frustrating barrier to growth limits the contribution SMEs make to the economy, and risks stifling innovation as businesses can’t always afford to invest in R&D, new product lines or technology to drive their business forward. It inhibits their access to new markets, potentially impacting the revenue generated by the UK’s cross-border commerce. It also risks affecting our digital economy, as SMEs find it hard to afford access to the skills, software and services they need to bridge the gap between physical and digital commerce.

But there is a solution that small businesses may not have considered: leasing or renting equipment or services from a supplier is a payment solution to ease the acquisition process of assets, rather than buying them outright. This option removes the need for major upfront investment, minimising reliance on credit from banks and financial institutions. Leasing also brings the advantage of providing the same cost each month as interest rates on monthly instalments are usually fixed, helping financial forecasting, lessening the blow from unforeseen costs.

Leasing is available on a wide range of equipment and services, from cars and office space to furniture and technology. It can provide SMEs with high performance, high specification equipment that might previously have only been available to large businesses generating significant revenues. For those smaller purchases which are essential to business operation – ink, paper and postage for example – but would not require a long term financial commitment, companies can also benefit from a revolving credit facility, with built-in flexibility so the borrower can repay over time or in full at any time. This aids forecasting as well as cash flow, and addresses the issue mentioned earlier in which smaller items can result in unexpected costs.

In this shifting world of commerce, for those beginning to integrate physical and digital business, leasing offers a low-risk approach to new levels of customer engagement.