Recent findings from the British Business Bank highlight that many SMEs borrow simply to maintain stability rather than to fund growth. This reflects what Rich Olsen sees in business prospects across the UK. So how can you break out of this cycle?
The Shift Towards Survival Borrowing
Many SMEs use funding as a short-term fix to manage cash flow pressure, rather than as a longer-term, strategic tool.
A key issue is timing. Businesses often delay seeking funding, even when they can see a future need. By the time they act, they require immediate access to funds, limiting their options to faster, higher cost solutions.
More cost-effective funding routes typically require six to eight weeks to arrange. Without that lead time, businesses can end up paying significantly more than necessary.
A Complex Lending Market
The rise of challenger banks and alternative lenders has increased access to finance, but also added complexity. Business owners face a growing range of options, with varying costs, structures and levels of transparency. In some cases, the true cost of borrowing is not immediately clear, particularly where pricing is presented as monthly repayments rather than interest rates.
There are also concerns around broker transparency in what remains a largely unregulated market. The National Association of Commercial Finance Brokers highlights the increasing role of intermediaries in SME lending, making it more important than ever for businesses to work with trusted, transparent advisers.
Do you know how your broker makes their commission? If the answer is no – ask them. If you don’t get a clear answer, find an accredited broker that you can trust.
Building Funding Readiness
To move beyond survival borrowing, SME leaders need to think early, focusing on preparation and planning. You need to:
- Develop a clear understanding of your cash flow and future funding needs
- Review your existing borrowing and its true cost
- Engage early with funding advisers
- Insist on full transparency when discussing financial options.
A structured, forward-looking approach will give you access to a broader range of funding options, often at a lower cost.
Think ahead
My experience with clients constantly reinforces the importance of thinking ahead about funding for your business. When you give yourself enough time, options open up that can help you transition from fixing problems to funding growth.
I often find solutions that combine different types of finance for my clients. With this blended approach, businesses are better able to manage costs and cash flow, and a more stable financial position helps them focus on growth.
If you’d like a conversation with Rich or another UKBA advisor about funding solutions for your business, please get in touch.