Study reveals banks are the third choice for SME finance

A recent research conducted by the University of Surrey shows that banks are the third on the list of finance sources for SMEs. This supports the recent calls for a British business bank which will work with enterprises and provide them with the funding they need.

The survey was authorised by Kingston Smith LLP, a popular accountant firm, and includes over 1000 enterprises which were divided in 13 focus groups. According to the results, most SMEs fund themselves by borrowing money from friends or family or by re-investing their profits. The most worrying fact is that 58% of the small and medium enterprises used only one funding source for the start of their business while 42% still rely on just one funding source.

Professor David Gray, one of the leaders of the research, states: “The results from the research are very worrying and it shows that SMEs don’t consider banks as a reliable and convenient funding source. The enterprises don’t have a reliable and long-term funding source, so many of hem fall apart as soon as their funding source is gone. Banks offer ‘patient’ capital which is available for a longer term and it can help SMEs to sustain and develop themselves and achieve better results.

Sir Michael Snyder from Kingston Smith also did a short analysis of the results: “Our experience shows that SMEs which have a reliable and long-term funding source are capable of surviving for longer and achieving better results.

Hopefully, the Government will consider this research and provide some of the more successful SMEs with stable funding which will help them flourish. A successful funding system will divide SMEs in different groups and match their types of expenditure with the funding sources. These enterprises should diversify their funding sources in order to improve cash flow management and spread risk.”