Greater collaboration from top to bottom will help SMEs access the required support


By Lucile Knight

06 Oct 2021

It is no secret that SMEs have endured a difficult 18 months. The pandemic has turned conventional business models on their heads and SMEs have had to quickly adapt, not only to accommodate new behaviours and trading conditions, but also just to survive. Indeed, they have coped admirably in spite of a dysfunctional financial services sector, where collaboration attempts to support SMEs have often been set back by inefficiencies and a lack of trust. With the government winding down its Covid-19 fiscal support measures and the well-documented material and labour shortages, initiatives from both the public and private sector to ensure SME needs are met now take on an even greater importance.

SME owners have long had to contend with challenges that have prevented them from growing their business as they would like. They thrive off a can-do attitude, but they can come unstuck when it comes to navigating the financial jargon that comes with running a business. They should feel they can turn to external support in confidence, whether that be with regards to IT, payroll support, or access to the capital they need to keep their business running.

In fact, difficulties securing finance are nothing new, and it remains a significant issue across many sectors, notably in construction. Our recent report on the sector (Rebuilding Growth) found that 1 in 6 (16%) subcontractors said accessing finance was a significant threat to their business.

When it comes to Invoice Finance, high street big banks, independent providers and emerging fintechs have tended to operate in silos and have neglected opportunities to learn from one another. Concerted collaboration efforts between finance providers can have many positive knock-on effects for SMEs seeking to navigate late payments, correct power imbalances or renegotiate supplier contracts.

The Government also has an important role to play in fostering more productive relationships, and one initiative that should be revisited is the Bank Referral Scheme. The scheme was initially launched by the Treasury in 2016 to improve SME access to appropriate finance by requiring the UK’s biggest banks to pass on the details of SMEs that they have turned down to Government platforms.

Despite being based on these sound intentions, the scheme’s impact has been negligible. Since November 2016, only 45,000 SMEs that were rejected for finance from one of the high street banks have been referred under the scheme, with just over 2,500 of these subsequently receiving funding facilities from alternative providers. These businesses will have derived multiple benefits from the scheme but the uptake figures show how it has barely scratched the surface.

As we move into 2022 and the post-pandemic landscape becomes clearer, the Treasury should consider how it can boost take-up, particularly with SMEs being weaned off Covid-19 support measures. Specifically, the Government should look to provide more transparent disclosure about the products and services offered by individual lenders and alternative finance providers, where funding mechanisms can be nuanced and difficult to understand.

It should recognise that ‘alternative’ doesn’t have to mean new. While fintech lending has undoubtedly raised the profile of non-bank forms of finance, there are alternatives to the alternatives that have stood the test of time. At BFS, for example, we have supported the growth and stability of UK businesses for almost four decades. Our strength lies in occupying the middle-ground between transactional lenders reliant on technology, and high street banks leveraging their footprint and legacy.

Having greater awareness of and access to the entire spectrum of funding options available will enable SMEs to address both short and long term challenges. While issues experienced at the height of the pandemic have undoubtedly subsided, the subsequent and combined effects of Covid-19 and Brexit are now being felt.

Front of mind for many are the supply chain and staff shortages. Our own clients tell us, both anecdotally and quantitatively, of the negative impacts these issues are having on their growth, despite strong demand.

October has also marked the end of the furlough scheme and temporary insolvency measures that shielded some of the more vulnerable SMEs from the effects of the pandemic. What’s more, loan repayments from the Government loan schemes are beginning to kick in, placing extra pressure on bottom lines.

Other fiscal pressures, meanwhile, will come from rising global inflation which will push up the prices of raw materials further.

SMEs have shown on multiple occasions how they can adapt in the face of adversity and are helping to propel the UK’s post-pandemic recovery. Amid such a myriad of potential pitfalls, businesses need to build flexibility into their planning and prioritise the establishment of a steady cashflow model

To do so in the best way for their business, SMEs need to know all the options out there, not just those currently in the spotlight or traditionally offered by well-known lenders.

There are many ways for businesses to address their funding needs outside of well-trodden paths, and we have a collective responsibility to ensure SMEs are making informed decisions when it comes to funding their operations. The industry needs to work together to better signpost SMEs towards the most suitable support and counsel. Longer term reforms to the Bank Referral Scheme are needed, but what is just as important is the sector rediscovering its human element so SMEs can turn to the likes of BFS in the utmost confidence.

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