SMEs struggle to secure finance as advice gap emerges

Suitable financial advice from high street banks and lenders remains elusive for UK SMEs, a new study finds.

Only a fifth (19 per cent) of SMEs say banks’ advice always meets their needs, suggesting an inability on the part of many lenders to cater for SMEs’ individual circumstances, according to a new report by Close Brothers Group.

Close Brothers surveyed over 1,000 SMEs owners about changing needs throughout their growth stages, with the results showing that the individual requirements of SMEs are not being met effectively, producing an ‘advice gap’.

Nearly half (46 per cent) of SMEs have experienced barriers in accessing finance, with a further quarter (24 per cent) being turned down completely when they are looking to grow.

Of the SMEs that experienced barriers in accessing finance, over a fifth (22 per cent) state that lenders didn’t understand their specific needs, a further quarter (25 per cent) say that their lender did not understand their sector at all.

The report finds that generalist lenders, which account for 90 per cent of lending to SMEs, often cannot meet these varied requirements of SMEs for funding at differing stages of their growth. This poses a significant challenge for the SME sector, especially as a large number of SMEs (38 per cent) only turn to high street banks for information and advice about the most suitable types of finance for their business.

In addition to the advice gap for SMEs as they grow, there is a clear issue with long-term business planning, with only 28 per cent of SMEs planning their needs for finance more than a year in advance, while 64 per cent only plan up to a year in advance. Around 8 per cent of SMEs do not engage in planning at all.

Adrian Sainsbury, CEO of Close Brothers’ commercial division, agrees that smaller businesses do not have the same access to and experience of the myriad of options that are available to them as larger companies. It’s clear that the traditional sources of advice for many are no longer sufficient.

Sainsbury adds, ‘Many do not feel their banks are taking into account their sector and specific circumstances, meaning they are not receiving the level of support they need to secure the right products and funding for the future.’

He concludes, ‘Given the importance of SMEs to the economy, it is vital that these companies are properly understood by the mainstream funders they turn to for guidance, whether knowing the specific financial needs of that business in a particular sector, or identifying the type of lending that will best suit their business at any given time.’

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Owen Gough, SmallBusiness UK

Owen Gough

Owen was a reporter for Bonhill Group plc writing across the Smallbusiness.co.uk and Growthbusiness.co.uk titles before moving on to be a Digital Technology reporter for the Express.co.uk.

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1 Comment

  1. This very much ties in with Hiscox’s report recently published on SME funding. It really highlights the need for traditional lenders to catch up with the Alternative Finance sector, who thankfully can offer other means to access that all important growth funding.
    Then it comes down to what Close Brothers have found, needing a thorough understanding of what can be offered. As one example we recently posted an article on the pros & cons of debt and equity funding (https://www.codeinvesting.com/debt-vs-equity-funding/). In the absence of traditional lenders sharing knowledge, we within the altfin sector should do so to help SMEs discover their options.

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