New research reveals reliance on traditional funding

Awareness of different types of business finance is very low among SMEs, with most continuing to rely on traditional bank overdrafts or personal sources of cash for additional funding, according to new research by Experian.

A poll by Experian of nearly 300 SMEs, conducted to understand how and why they have sought additional finance, has found that alternative sources of finance are yet to have made a significant impact.  Of the various forms of business funding options, crowd-funding was the least well-known among respondents, with 69 percent never having heard of it.  Meanwhile, angel investment, business cash advances and government grants also scored poorly in terms of awareness.

When questioned about the first thing they do when thinking about additional financing, 42 percent of respondents said that they would approach their personal bank. This was followed by 18 percent who said they would speak to their accountant.

The findings also reveal that 60 percent of respondents had sought some form of extra funding in the last 12 months and the need to alleviate short-term cash flow problems was by far the biggest reason for applying for extra cash (58 percent). This outstripped activities for growth, such as expanding their product portfolio (20 percent) or hiring more staff (12 percent). When asked to name the primary source of additional funding currently used, the top answer (20 percent of SMEs questioned), was delaying payments to their suppliers, further highlighting the desire to ease their cash flow. This was equal with the 20 percent who said they rely on cash from family or friends.

Experian also found that only one in four (27 percent) SMEs definitely planned to apply for some form of extra funding in the coming year.

Max Firth, UK Managing Director for Experian’s Business Information Services division, says for many SMEs, it may make more sense to consider invoice finance options to alleviate the stress of collecting payments:

“It’s clear that SMEs are struggling to get paid themselves and this suggests that getting new customers on board is outweighing the need to assess the credit ratings and payment performance of prospective customers before doing business with them. It is vital that SMEs are completely aware of how quickly clients pay their bills to other suppliers and any likely impact on their own business.”