UK businesses face a major funding crisis, ArchOver finds, with 34 per cent saying late payment has caused their business to fail
British information mill facing a funding crisis because banks are not supporting the future of UK PLC. Businesses desperate for finance to support their growth are only receiving on average 70 percent of the agreed loan – meaning over a third (37 per cent) are unable to launch a new product or service as a result.
Research commissioned by ArchOver, which reviews the funding landscape for UK businesses in the last year, has found that one in five companies are being rejected for a loan by banks, and of those 17 per cent were put off or unable to apply for any further loan, crushing the entrepreneurial spirit of UK SMBs.
The research also identified the catalysts for businesses requiring additional financing and just what type of loan they secured.
More than two in five (43 percent) were prompted to seek finance in order to fund digital transformation, whilst 39 percent needed a loan facility to finance the move to a new premises or purchase new equipment. More worryingly, on the third (35 per cent) of businesses required credit to cover short-term cash flow issues – a threat to their ability to operate overall.
ArchOver discovered that part of the reason behind this is that companies are facing a crisis of late invoice payments, causing cashflow damage that is compounded by the lack of bank support. Less than one in twenty respondents (under 5 percent) said their invoices are paid promptly all the time. Just under half of them (49 percent) said they receive fewer than half of their invoices by the due date.
That's pushing many into the arms of dangerous financing options. Four in five (81 per cent) of businesses have considered using invoice discounting to fix their cashflow problems. But over-promising is made into invoice discounting. The same amount of respondents (80 per cent) said their clients are now over-dependent on invoice discounting – like opium, it provides a quick hit, but at the expense of addiction and long-term expense.
Conversely, nearly six in ten (58 per cent) of those who've used invoice factoring now believe peer-to-peer (P2P) lending is safer, and 54 per cent believe they can obtain a better rate on their loan with a P2P provider than through a bank.
“The funding system for UK businesses is broken”, commented Angus Dent, CEO. “2021 was a tough year to be an SME as you would expect, but companies aren't bowing down at this time – despite the best efforts from the banks. Our research shows that despite their optimism, high-growth information mill being turned away time and again by big funders who, we're told, have postponed all decisions on sub-lb10m loans until after 29 March. That companies have to run into the arms of unscrupulous invoice discounters to locate cash is an indictment of the finance industry's management of British business.
“Brexit is about to result in the funding picture even tougher for businesses. But there are options that won't ignore you or suck you dry. If they want to keep growing in 2021, UK companies may need to look for financiers who'll become familiar with them deeply and support them with the storm – not just make a quick buck from them.”
To read the full report, check out the report website.