Special Features

UK SMEs: Capital injection, Brexit and other concerns

Chirag Shah - Nucleus Commercial Finance
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1st October 2019
Chirag Shah Nucleus Commercial Finance
"It’s vital that SMEs remain at the forefront of their industry and stand out from the competition, or else they risk lagging behind."

SMEs are a crucial part of our economy, not only in terms of revenue but also employment.

Accounting for 99% of all UK businesses, it’s vital that SMEs remain at the forefront of their industry and stand out from the competition, or else they risk lagging behind. This is where capital injection has a role to play, whether that be helping businesses to deliver greater profit, increase staff, launch new products, expand into new international markets or even to put a renewed focus on their brand, marketing and online presence.

Healthy cash flow

Having a healthy cash flow is central to a successful business, but in order to do that, they will first need to overcome their fear of external finance. Without this funding, the businesses and its ability to grow may well be stunted.

Recent research found that 80% of SMEs agreed that their growth plans are based on what they can afford themselves, with 73% opting for slower growth over borrowing to grow faster. But it’s this fear of funding which means that so many businesses ultimately fail despite having huge amounts to offer their potential customers.

This unwillingness to borrow money likely stems from the idea that borrowing a loan in any form is still considered taboo and while it is generally a given that most SMEs want to grow, many avoid doing so if it involves borrowing external finance. However, it’s also seems that Brexit uncertainty is taking its toll on today’s small and medium sized companies.

Uncertainty is bad for business

In a climate dominated by political and economic uncertainty, many SMEs are concerned about the future of their business, as the unpredictable environment is making it tougher to plan ahead. It’s hardly surprising that concern for political uncertainty among SMEs was just 10% in 2016 before the vote to leave the EU, compared to 23% today.

The lack of clarity around what Brexit will mean for small businesses across the country has meant that small to medium sized businesses across the UK are adopting a wait and see approach and becoming increasingly reluctant to borrow.

A fifth (21%) of UK SMEs who planned to take out additional finance over the last 12 months put their plans on hold, and this figure is even higher for those in London, with over a quarter (28%) holding off. As a result, almost one million businesses have held back from accessing additional capital, and as a consequence are missing out on the opportunity to invest in future growth and maintain their competitive advantage in a crowded marketspace.

Of those who put their capital injection plans on hold, a quarter attributed this to ongoing Brexit uncertainty, one in seven (15%) to company performance and just over one in 10 (11%) to a change in their business strategy. While the majority of business owners who had put plans on hold intend on trying to secure additional finance again, a quarter of this group are unsure of the timeframe. This suggests that SMEs are seeking further clarity on the ongoing Brexit situation before they utilise external finance to grow the business.

Economy boost

Supporting UK SMEs in delivering growth and achieving their ambitions is essential to driving our economy forward and providing job opportunities. In 2018 alone, SMEs were responsible for a combined annual turnover of £2 trillion and employed 16.3 million workers.  As such, we can’t ignore the long-term impact of underinvestment on the future of the UK’s SMEs and our economy.

With the mid-point application for additional finance standing at £35,000, this means UK SMEs have held back injecting a total of £20bn in capital over the past 12 months, which will undoubtedly have a knock-on effect for our economy. 

The Government and finance industry have a responsibility to demonstrate the positive impact alternative finance can have for businesses in helping them achieve their strategic objectives. It’s vital that SMEs invest in their future to stay ahead of the curve and to continue to play their pivotal role in our economy.

Planning ahead

While we all know that it’s difficult to start planning for the unknown, having strategies in place are crucial to a business’ success. Brexit negotiations have been going on for some time but if SMEs are to stay ahead of the curve and continue to play their pivotal role in our economy, they should make a plan of action for the different possible outcomes. There is a wide range of finance solutions on offer and businesses should make the most of these opportunities to help them reach their full potential.

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