Finding the funds – how British businesses did it
July 17th, 2017
We surveyed 500 British SMEs to uncover their experiences of finding funding over the past five years. In this article, Steve McGerr, Hiscox Head of Direct Commercial, examines the challenges SMEs are facing, and how the experiences of small business owners varies across the country.
The F word. Without it, businesses can face obstacles to innovation, stifled growth and even failure.
Facing the fear of funding, we asked 500 small businesses across Britain about their experience going through the funding process in the last five years, looking at the various funding options they chose, the amount of funding they secured and some of the biggest challenges they continue to face when looking for and obtaining funding.
Bank loans remain a popular funding avenue
Despite the arrival of new finance options for start-ups, such as crowdfunding and peer-to-peer loans, most small businesses still turn to banks. Three-quarters of businesses surveyed used bank loans for funding over the last five years. This possibly reflects concerns, outlined by the Financial Conduct Authority, over the higher risks and lack of regulation surrounding newer funding options.
Other popular funding choices were EU funding and equity funding (both received by 38% of businesses over the last five years). While equity funding allows dynamic businesses the opportunity to grow with the help of investors, the EU’s European Regional Development Fund (ERDF) has accounted for €3.6bn (£3.1bn) of dedicated small business support since 2014. However, with businesses forced to be increasingly proactive to ensure European funding opportunities remain available, many businesses in Britain continue to face an uncertain financial future as the country re-evaluates its economic strategy.
Ask and you may – or may not – receive
As the saying goes: ‘The worst they can say is “No”’. To find out how often this happens, we asked UK businesses to provide figures for the amount of funding they had applied for in the last five years (averaging around £475,000) – and how much of it they received (£343,000).
Base your business in London, however, and you may have increased your chances of receiving the funding you require (no promises, unfortunately). In fact, our survey found London-based businesses received on average around £55,200 more than they applied for over the last five years. This is in contrast to businesses in the North West and South East of England who received an average of around £83,660 and £82,800 less than applied for, respectively.
Facing the funding challenge
Despite many funding schemes being made available to new businesses, 36% of business owners said a lack of options was the most common single challenge they faced when looking for funding.
While 28% of businesses cited a lack of eligibility as the reason holding them back from obtaining finance, a further 25% of businesses said market competition was their key challenge. It could be the strict criteria for funding – including profitability and viability of the business – alongside a high demand for funding and a lack of accessible information that has caused businesses to miss out on a variety of funding opportunities.
Economic uncertainty plagues Britain’s small businesses
Our survey also looked at other factors influencing the finances of Britain’s small businesses. Almost a third (31%) of businesses surveyed said economic uncertainty had been the biggest factor impacting their growth in the last five years.
With a Scottish independence referendum, election uncertainty and a vote on EU membership, it’s been a turbulent few years for the British economy. In light of this, it’s perhaps unsurprising that the unpredictability of Britain’s economic health has been a key issue for businesses. In fact, 18% more businesses found economic uncertainty affected their growth than the issue of competition within their own industry.
Other causes of concern for Britain’s businesses include the availability of skilled workers, with one in ten businesses facing obstructions to their growth due to a lack of skilled personnel. With the Institute for Public Policy Research finding that employers in Britain are currently spending over £6 billion less on training per year than the EU average, and the prospect of visa complications for foreign workers following Brexit, the ever-growing skills’ gap could continue to hinder business growth in Britain.
Hack the funding process with our handy guide
The businesses we surveyed have weathered many storms in their quest for growth. From facing external obstacles and difficulty assessing funding options, to re-evaluating their viability in an increasingly competitive market. If you’ve been working towards growing your business, and want to explore different funding options, check out our Funding a Business guide. We’ve got plenty of resources and expert advice to help you through every step of the process.
For more information about keeping your business healthy and protected, visit Hiscox business insurance.
 We have defined ‘small business’ as an enterprise with 250 employees or less.