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78% of SMEs are too risk-averse to seek external finance

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Wesleyan Bank research suggests small business owners are shunning banks and turning to Google for financial advice

26 April 2016 - Over three quarters (78%) of UK SME owners admit that risk of debt prevents them from seeking external funds, according to new research, indicating that a 'non-borrowing culture' among small businesses could be thwarting the market's return to a pre-financial crisis state.

The research, conducted with over 500 UK businesses by specialist mutual financial services provider Wesleyan Bank, highlights that more SMEs would prefer to turn to Google as a source of financial advice compared to 39% who would consult their bank. With business owners more likely to use unregulated sources for business advice, many may be unaware of the options on offer or be getting sound financial advice.

On average, three quarters of SME owners feel uncertain about the external funding options available to them. A mere 2% of those surveyed borrow money on a regular basis. SME owners generally have a better understanding of traditional funding options such as bank loans and overdrafts over alternative options such as asset finance.

86% of SME owners intend to maintain private ownership of their business, with only 7% aiming to be acquired, 2% seeking equity backing and 4% seeking other end goals. As the ultimate aspiration for a clear majority of entrepreneurs is to keep their ownership at its current form, much of the SME community seems to have fairly low level ambitions.

Small business owners are also more likely to use traditional business funding options, over alternative ones, for example:

Traditional finance options

  • Using savings - 55% 
  • Overdraft/credit card - 38%
  • Bank loan - 31%

Alternative finance options 

  • Invoice finance - borrowing money against unpaid invoices to support cash flow and release funding for investment - 6% 
  • Equity finance, asset based lending and asset finance - for example, the ability to invest in new premises, equipment and the latest IT technologies - 4% each
  • Crowdfunding - 3%

Only 40% of SME owners feel positive about their organisations' competitive pressures and digital presence. As they struggle to keep up with the demands of running a business, external finance could help restore a healthy financial position that many may have enjoyed prior to the recession.

Sean Read, Director of Sales & Marketing at Wesleyan Bank says, 'Without external finance, many SMEs are stifling their chances of prospering and fulfilling their ultimate potential. It's only natural for small businesses to be cautious about making a financial investment, but there's an equal risk in failing to seek support for growth.

"The SME community needs to understand the plurality of finance options available to them, beyond relying on internet-based research alone. Trusted and leading providers, such as Wesleyan Bank, are able to explicitly support SMEs by offering specialist products and guidance that is tailored to their growth plans and business situation.

"The recession may have instilled a 'non-borrowing' culture into the mindsets of many SME owners, but now we're working in a better economy, it's time for them to broaden their horizons. SMEs are the lifeblood of the UK economy, after all."

Wesleyan Bank's research surveyed 543 SME owners who ranged from first time business owners to serial entrepreneurs.

'WESLEYAN’ is a trading name of the Wesleyan Group of companies.

Wesleyan Assurance Society and Wesleyan Bank Ltd are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Wesleyan Financial Services Ltd, Wesleyan Unit Trust Managers Ltd, Practice Plan Ltd and DPAS Ltd are authorised and regulated by the Financial Conduct Authority.  Advice about investments, insurance and mortgages is provided by Wesleyan Financial Services Ltd.

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