SME finance myths dispelled
There are a number of myths surrounding financing for small businesses. Many young companies can end up automatically assuming that they won’t be eligible for business funding, or that it can end up being too stressful and complicated to apply for it.
However, according to a report that was recently published by Libris, it is estimated that more than half of UK SMEs (55%) have missed out on company funding opportunities, simply because they didn’t know it was available, they thought it could compromise business growth or that they thought they wouldn’t qualify for a loan.
But this isn’t true, business financing can help SMEs in a number of ways, including helping to maintain cash flow and inventories, accelerating business growth, and providing the possibilities for future investment.
To help you understand the options available to you, we’ve decided to dispel some of the most common myths regarding business finance for small companies.
Debt incurs risk and could inhibit growth
Many SMEs end up avoiding taking out loans or only take them out as a last resort as they are scared that it could stifle business growth.
Nevertheless, a variety of loan options, such as invoice financing, are actually designed to help company growth, rather than make it more difficult. This is because most business loans are offered to make it easier for owners to access the capital they need should a business opportunity arise, or to help scale their company.
Things such as invoice finance can actually help small business owners in a significant way. It provides a cost-effective way for small companies to grow. It can help to cover the cost of things such as bringing in new employees or the cost of marketing.
It is too expensive for small companies
Another myth that surrounds small business financing, is that SME owners can believe that the loan will be too expensive for them. The assumption is, is that as the company may represent a risk for a lender, that the finance provider will be unwilling to grant a loan to SMEs unless there is a guaranteed high return.
But this isn’t the case. The majority of lenders across the UK understand just how important SMEs are to the economy, and how vital it is to invest in them. As a result, rates to SMEs tend to be competitive providing that the company in question has a good business plan and manages their existing company effectively.
It is difficult for SMEs to get funding
An understandable myth that pervades financing for SMEs is that due to the economic downturn in the UK, and the ongoing political uncertainty in the UK due to Brexit, is that funding is difficult for new companies.
This isn’t completely true, and it is still definitely possible to gain access to funding if you are an SME. For example, a report published by Small Business Trends shows that over 35% of UK startups have been successful applying for a business loan, which shows just how worthwhile it can be to make an application in the first place.
There are also a number of ways you can improve your chances of your application being successful for business funding. For example:
- Offering up potential collateral to a lender, to show you are serious about your commitment to the SME
- Thoroughly organizing your financials to make it clear to a lender what you have achieved
- Develop a strong business plan to present to potential lenders