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How UK SMEs can overcome bank loan difficulties

Despite recent improvements to UK economic growth, SMEs are struggling to access finance. Data from the Bank of England shows that net lending to SMEs was -£0.8 billion in Q4 2014. In short, lenders are gradually clawing their money back. We're also seeing deeper changes in the way SMEs access funds and manage their finances; changes that give a glimpse of new solutions to bank loan difficulties.

Cash flow managementSMEs savings jar

Last year UK SMEs averaged £1.3m of trade debt each. If you're looking for a loan is to improve cash flow, you may be better off looking at your debtors.

Fortunately, politicians are backing schemes to curb late payment practices and the Small Business, Employment & Enterprise Act (SBEE) will soon require companies with over 250 employees to review and report their payment procedures. This should give clarity to their clients, and we expect more initiatives this year.

In the meantime, agreeing clear terms with clients, simplifying payment processes, and improving invoicing policy to ensure promptness, accuracy and assertiveness can all help. If you have a large amount of debt, you could consider seeking assistance with debt collection, or even debt factoring – selling your invoices to a third party.


Banks should already make government-funded Enterprise Finance Guarantee (EFG) loans available if they won't lend directly, but SBEE is also introducing a database of alternative lenders, which banks must refer clients to when rejecting loans. New 'challenger banks' are also in the pipeline, and can be expected to offer accessible loans to SMEs. So the landscape is improving.

There are also a range of alternative lenders available, including:

  • Peer-to-peer sites like Funding Circle and Zopa, which match businesses with savers looking for better rates.
  • Hire purchase or asset finance, which is useful for buying new equipment and can be accessed through the Federation of Small Businesses.
  • Government start-up loans of up to £25,000.
  • Pension funds. If your company runs a Small Self-Administered Scheme (SSAS), you may be able to borrow from it.
  • Industry bodies. It's always worth investigating whether your company is eligible for grants and loans from specific initiatives.

Capital Investment

Unlike loans, equity capital investments don't need to be repaid: so you won't be saddling your business with interest. You may, however, be relinquishing a portion of control and, potentially, profits to an external investor.

Several studies suggest that more equity finance would benefit UK businesses, and not only by cutting interest payments. Equity capital often brings with it valuable assets and expertise, which bolster business prospects. In other words, equity investment is very useful if you're seeking funds to grow your business, rather than for cash flow or specific assets.

Equity capital is available through:

  • Web-based crowd funding sites like CrowdFunder or Kickstarter.
  • Angel investors and venture capital companies (VCs).
  • Accelerators like Wayra and Ignite, which provide expertise, contacts and office space.

If you're actively seeking investors, you may also want to take advantages of tax incentives like the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS).

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