Mind the Gap: Education on Bank Alternatives Key to Improving Small Business Funding
- Access to finance remains the single greatest obstacle to growth
- Entrepreneurs prefer to self-fund or seek family capital
- Signs indicate that the Government has a better understanding of small business funding
A new survey released today by Dell, Entrepreneur Country and leading business and financial adviser Grant Thornton UK LLP, has uncovered that a lack of awareness around the available funding options for small businesses is stifling growth across the sector.
The ‘Future of Finance’ survey[i] polled entrepreneurs, and business leaders from across the UK to understand the funding difficulties small firms are facing today. Half of respondents found it ‘very difficult’ or ‘difficult’ to fund their business ventures in the past 12 months indicating a need for greater access to UK lending options.[ii]
Greatest resource: family & friends or personal capital
British entrepreneurs turn to self-funding and family capital to support their businesses. More than half of respondents (57 percent) have never applied for bank funding, with the majority of those respondents choosing to self-fund instead.[iii] While businesses still see banks as the primary source of finance, many believe they don’t always present the most viable route for their business, either feeling they will get refused bank credit or preferring to self-fund.[iv] According to some entrepreneurs, the sheer volume of information required by banks can often be overwhelming as well as a deterrent.
“Entrepreneurs and small businesses are resourceful by nature. Empowering them to extend that innate resourcefulness to their financial requirements is key to improving access to funding. These findings shine a spotlight on the need for funding alternatives, and the demand for more transparency and education on the full spectrum of options,” said Julie Meyer, founder of CEO of Ariadne Capital and founder of Entrepreneur Country.
More education needed
There are a growing number of alternative finance schemes in the UK, but entrepreneurs are calling out for clarity and education on what is available. Almost a third of those surveyed (32 percent) indicated that better education about bank alternatives was needed most to improve small business funding.
Nick Watson, Partner, Grant Thornton, said: “Small and early-stage businesses will be finding today's funding environment a far more challenging landscape than it was pre-recession, as banks have taken a more prudent and interrogative approach to lending. However, there are other methods of funding available which often suit the risk profile of these dynamic organisations more appropriately than traditional bank lending. The flexibility of some of these models may allow businesses that extra bit of agility needed to capitalise on available growth opportunities.”
It’s not all bad news. Close to half of entrepreneurs believe that the government has a much better understanding of small business needs than it did five years ago (47.5 percent). For early stage startups, crowdfunding is increasing in popularity (11.5 percent) alongside investment from venture capital firms (14 percent).
Hatty Fawcett, Founder of Seek and Adore, explained why she turned to crowdfunding to support her company: “It was very unlikely that a bank would have provided finance for Seek & Adore given the early stage of our business. If entrepreneurs are serious about what they are doing, have a strong business model and a business idea that is easy to convey, I would definitely recommend crowdfunding.”
Sarah Shields, General Manager and Executive Director for Consumer and Small and Medium Enterprises, Dell UK, added: “Entrepreneurs are the lifeblood of the British economy. It’s encouraging to see the private sector and government taking notice of their potential and backing this important sector with new financing options. At Dell, we felt we needed to take it a step further and provide the support and education entrepreneurs are calling out for. Through the Dell UK Centre for Entrepreneurs, we’re aiming to provide that support with access to financing, mentorship and knowledge.”
Conducted between September 24 and October 11, 2013, the survey also found that:
- Bound by red tape: ‘Government legislation’ voted the second largest barrier to growth in a weighted question
- Funding integral to growth: 41 percent of those who applied for credit did so to support growth and expansion
- Slim talent pool: the largest challenge to attracting and retaining talent is potential candidates being deterred by the ‘uncertain’ nature of an entrepreneurial start-up (38 percent)
- Funding for technology needs to grow in priority: small businesses are not using financing for IT, despite the fact that technology is an enabler for growth, and one which can require significant financial investment. Just 10 percent of respondents secured funding primarily for technology
- More visibility of government schemes: a quarter of entrepreneurs believe that increased promotion of government-backed initiatives was the single most important requirement for easing access to funding[V]
As the visionary outcome of a true entrepreneur, Dell is committed to help power the success of entrepreneurs by developing technology solutions that help their businesses increase productivity and grow. Dell listens to customers and delivers innovative technology and services that give them the power to do more. For more information, visit www.dell.com.
About Grant Thornton UK LLP
Grant Thornton UK LLP is a leading business and financial adviser. A member of the global network of Grant Thornton firms, it helps dynamic organisations unlock their potential for growth by listening to their ambitions and providing meaningful, forward looking advice. Proactive teams, led by approachable partners, use insights, experience and instinct to understand complex issues for privately owned, publicly listed and public sector clients and help them to find solutions. More than 35,000 Grant Thornton people, across over 100 countries, are focused on making a difference to clients, colleagues and the communities in which we live and work.
Find out more at www.grant-thornton.co.uk
About Entrepreneur Country
Ariadne Capital is the investment firm founded by Julie Meyer in 2000 with 62 other leading entrepreneurs such as the founders of Easynet, Hotmail, WorldPay, SES Astra, Staffware, Element 14, Brokat, ENBA, NetPartners, SportingBet and BetFair. Ariadne pioneered the ‘Entrepreneurs Backing Entrepreneurs’ model for the financing of entrepreneurship, has syndicated £300m of investments, manages the Ariadne Capital Entrepreneurs Fund, and has backed several explosive growth companies such as Skype, Monitise, Zopa, BeatThatQuote and SoundOut.
[i] Survey distributed via email to Entrepreneur Country’s database of over 35,000 members, with 204 surveys received within the timeframe of September 24 and October 11, 2013
[ii] 51 percent of respondents found it ‘very difficult’ or ‘difficult’ to obtain finance for their company in the past year
[iii] 56 percent of the 57 who did not apply for bank funding self-funded
[iv] 19 percent of those respondents who didn’t apply for bank funding did so because they expected to be refused credit
[V] 24.5 percent of respondents voted for ‘Increased promotion of government-backed schemes’ as the factor needed to ‘improve SMB’s access to funding’