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SMEs too shy over debt

High-growth small and medium-sized businesses are backwards in coming forwards when it comes to external funding, according to new research. This is in spite of government schemes available designed to increase business credit access.

A study by ICAS into financing challenges for small business found firms that are growing rapidly tend to opt for bank finance over equity finance, but are more liable to lean on internal resources when it comes to business development.

The reservations, according to ICAS, are based on not wanting banks and other traditional lenders to have too much power over their firm, such as being able to renegotiate or modify financing terms. The study also said that the focus of government policy has emphasised improved credit access for hesitant borrowers. However, it was found that high-growth SMEs were often reserved when it came to borrowing, as opposed to being against applying for fear of rejection.

The report ended:

“Attitudinal change is required to transform ‘reluctant borrowers’ to ‘willing borrowers’ for both debt and equity finance. Pro-active efforts are required by policy makers and funders to promote the demand for finance.”

Earlier in 2014, ACCA asked the government to boost financial infrastructure and literacy to help SMEs to grow.

Small businesses may look at their accounts at the end of the year and feel content that debts are kept to a minimum, especially any owed to external lenders. However, a cash injection could help the business significantly in the long run. Those that employ the services of a quality accountant in the Wirral or elsewhere will have accurate numbers from which to access and just may decide to take the plunge sooner or later.

Posted by Louise
June 26, 2014
Research & Statistics

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