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Going for growth

Helping small firms flourish through access to finance

A lot of smaller firms rely on external finance to help them to grow.

The financial crisis of 2008 created a very different climate for smaller businesses seeking to borrow. Today, the process of searching for suitable finance has become more complex and varied. There is evidence that the poor conditions for lending at a macroeconomic level are being exacerbated at a local level in some parts of the country by bank branch closures.

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Many smaller businesses believe credit is relatively scarce. According to FSB’s most recent Small Business Index (SBI) data, 42 percent of small business owners say credit availability is very poor (19%) or quite poor (23%). Just 24 percent feel credit is readily available. These numbers improved between 2012 and 2016, but have weakened in the past two years.

Traditional bank lending (debt finance) has become less accessible to small firms – particularly those seeking early-stage funding – with banks less likely to take on riskier propositions. However, alternatives are available for those that know where to look. For example, challenger banks have started to step into the space vacated by more established institutions. And new options, such as crowdfunding, have also provided a solution for some small businesses seeking external finance. In fact, there are a variety of alternative finance options available, such as equity finance (including angel and venture capital finance) and peer-to-peer finance. However, despite increasing awareness among smaller firms, these alternatives still exist on the margins of small business finance markets.

The reality is that most small firms fail to look beyond traditional banks (usually the bank they use in a personal capacity) when attempting to secure a loan. Large banks remain the dominant force in small business finance markets.