Two in three SMEs are seeking new funding methods to cope with pandemic

by Micah Guiao09 Oct 2021

Two in three small and medium enterprises (SMEs) went for new funding options, while one in three did not mainly because of rejected applications, according to the latest ScotPac SME Growth Index.

The index revealed that 66% of SMEs are sourcing a new type of funding – a jump from the 46% recorded early this 2021. This indicates that more businesses are attempting to move past the pandemic by taking back some form of control.

In fact, 47.3% of those who did not go for with new funding said that their applications were either fully rejected or that they only received some of the funds they asked for.

“The fact [that] so many SMEs tried new funding avenues shows they realise pandemic conditions are a longer-term proposition that they will have to adjust to,” said Jon Sutton, chief executive officer of ScotPac.

The top three reasons SMEs gave for seeking new funding were to buy plant and equipment (57.5%), improve cashflow (40.6%) and pay down debt (34.3%).

When asked what new kind of funding SMEs went for to keep the business moving, 55.4% said they turned to owner funds, with 42.5% relying on personal credit cards.

“We’d encourage business owners to seek professional advice about more sustainable funding options,” Sutton said. “Reliance on retained profits can [also] hinder growth, especially if you are facing rapid growth.”

The rest looked to asset and equipment finance (38%) and government stimulus funds (27.6%). On the other hand, demand for invoice finance as a new source of funding more than doubled in the past three years.

The minority who did not seek new funding options cited an aversion towards excessive admin documentation requirements (28.5%) and a reluctance to take on more debt (28%).

Meanwhile, only one in 10 SMEs did not need additional funding.

“Given the pandemic stresses placed on the SME sector, the onus is on financiers to make application processes and ongoing admin as easy and quick as possible,” Sutton said.

As for funding methods for new business investments, non-bank lending and new equity are rising the fastest, up by 5% and 6% respectively since the September 2020 index.

Owner funds also remain a popular at 82% for new business investments, but this has lowered from last year’s 91%.