Many SMEs have an urgent need for cash but are being turned away from many ‘traditional’ lenders, leading to the risk of a major funding gap as they strive for growth post pandemic.
New data from Allica Bank, acquired from a survey carried out across the Midlands and Yorkshire, shows that 46% of Yorkshire-based SMEs and 45% of Midlands-based SMEs will require additional funding within the next 12 months, but that nearly seven out of ten (69%) in Yorkshire and more than half (58%) in the Midlands say they have previously been rejected when applying for extra cash. The deficit in funding will potentially hamper recovery and growth in the region, only to be compounded by the end of the UK’s furlough scheme.
In response to the findings, Allica believes new approaches to how banks assess businesses for finance and wider business funding schemes need to be urgently adopted to protect the 6 million UK SMEs1 post pandemic.
Explaining how current processes need to be challenged, Katie Roberts, from Allica Bank’s Yorkshire relationship management division, says: “There will have been unviable businesses rejected for funding, however the high percentage suggests business performance and credit ratings are not being taken in the context of the pandemic. Instead, banks need to start taking a more forward-looking approach, using other data and information to assess the creditworthiness of a business.”
The survey results also demonstrated that more than a quarter (27%) of Yorkshire businesses and more than one in five (21%) of Midlands businesses felt that they did not have access to adequate support from their bank during the pandemic and that only 35% in Yorkshire and 30% in the Midlands feel completely confident in obtaining funding from their existing lender.
“Covid loans have undoubtedly been a lifeline for many businesses, but they have also dominated the resources of many banks, who have then lacked the capacity to support financing business growth and the many businesses that have been able to adapt and perform well during the pandemic,” commented Reena Pithwa, from Allica Bank’s Midlands relationship management division. “Expert support from a dedicated relationship manager is required to support the almost 50% of SMEs knowing they will need financing over the next 12 months and those that are not sure. What our regional businesses need is someone who truly understands the businesses the bank is lending to, and this is going to be more important than ever in the months and years ahead”.
Of those SMEs looking for funding, most businesses surveyed (26% in Yorkshire and 37% in the Midlands) are looking to invest in new equipment, to buy or upgrade premises (24% in Yorkshire and 18% in the Midlands), and to recruit new people (20% in Yorkshire and 18% in the Midlands). SMEs are also looking to invest in marketing and sales (13% Yorkshire, 15% the Midlands) and to support cashflow challenges (23% Yorkshire, 13% the Midlands).
“On the whole, the results paint a positive picture” concludes Katie. “The majority of funding is being sought for growth and expansion, rather than recovery. A requirement that needs support if Yorkshire and the Midlands are to bounce back as they should.”
The survey was conducted by Allica Bank and the specialist small business magazine and media platform SME Today.
*Survey conducted in June 2021, including 68 SMEs based in Yorkshire and 128 SMEs based in the Midlands.