According to a report by GLI Finance (GLIF) and Cambridge University Centre on alternative finance, 80 percent of small and medium-sized enterprises (SMEs) obtain their financing from four UK banks. Of the SMEs that partook in the study, 56 percent said that they were unaware of alternative finance sources.
SMEs create about 65 percent of jobs in the UK. Yet, traditional lenders are continuing to reduce funding for SMEs due to the financial crisis. This is likely to cost the economy about £20 billion by 2020. The alternative finance industry plays a vital role in bolstering the growth of SMEs. It helps SMEs to access funds easier, quickly and cost effectively; thus enabling them to hire more staff, increase turnover, expand operations and increase profits. The Government has to take action to support the alternative finance industry in order for the SMEs to get the financial support they need to grow.
This report is similar to the provisional findings released by Competition and Markets Authority (CMA) last month about SME banking. The report showed that four banks (Lloyds Banking Group, Barclays, RBS and HSBC) accounted for 80 percent of business lending; generating an annual revenue of about £2.7 billion.
Funding Options, a GLIF investee platform, showed that at least £5.7 million a day in small business overdrafts have been retracted by banks since 2011. This has reduced available credit for small businesses by about $8.4 billion, costing the economy approximately $2.9 billion a year.
The report also found that geographic variance affects how SMEs get handled by financial institutions. The chances of North-based SMEs getting loan approval from financial institutions are lower compared to London-based businesses.
With all these challenges, the report recommends a comprehensive awareness campaign that would improve alternative finance knowledge among SMEs. The Government should fully support implementation of the Small Business Enterprise and Employment Act 2015. This will drive change in SMEs and transform the structures of financial systems thus facilitating economic growth.
Dr. Louise Beaumont, GLIF’s head of public affairs, said that the lack of awareness of the various SME alternative finance options is threatening to undermine the recovery of UK economy. He added that the Government and other stakeholders should look at policies and strategies that will reinforce the growth of SMEs because this is a sector that plays a crucial role in the economy. There is a definite need for change in the behavior of the SMEs. His change will be spurred on by creating an accessible environment that will benefit SMEs, as postulated by the Small Business Enterprise and Employment Act.