The funding picture for SMEs is mixed.....

While access to traditional bank loans has been limited since the global financial crisis, we’ve seen a dramatic increase in equity investment – up from £1.6bn in 2011 to £12bn in 2019.

Although the financing options and tax incentives open to UK SMEs are improving year-on-year, almost one in ten small businesses are still not seeking the external capital that would allow them to grow, a new report reveals.

Unlocking Growth: How to Expand Access to Capital, a joint report from The Entrepreneurs Network and The Enterprise Trust, evaluates the funding options open to SMEs – from Start-Up Loans and grants to equity crowdfunding and peer-to-peer lending. The report identifies policy changes that will ensure businesses can access the finance they need to grow.

While traditional lending is down, according to the British Business Bank, the bank is still the first port-of-call for SMEs seeking finance. It’s only once entrepreneurs have been turned down by the bank that they investigate other types of lending, including equity investment. These alternative forms of finance are effectively filling the gap.

According to Beauhurst, the demand for equity investment via venture capitalists has exploded. In 2011 the figure stood at £1.6bn; last year it reached £12bn.

Despite this, figures suggest 9.1 per cent of all SMEs fall into the category of so-called ‘discouraged borrowers’, businesses with a real need for finance, who fail to apply due to fear of rejection, a belief that raising capital would be too expensive, or concerns the process would be too difficult or time-consuming.

This leads to an estimated £1.5bn SME investment shortfall, or £11,773 for each discouraged firm.

It also leads to fewer jobs and weaker economic growth through a lack of investment in workforce skills, investment in new technology, and investment in international expansion.

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