The SME Financing Challenges in the UK

Small and medium enterprises (SMEs) are the backbone of the economy, being the main contributors to employment in developing and developed countries. Despite their importance, access to finance is relatively limited when comparing to large firms and is a major operating constraint for SMEs. 

The limited financing to SMEs derives from their nature. SMEs tend to be informal, young, have less publicly available information, and operate in unfamiliar sectors, all of which results in higher information asymmetries and risk, discouraging bank lending. Many times, these firms also do not have enough assets that can be used as collateral. Additionally, these firms might find it too costly to list in capital markets. Even when they do list, they might fail to attract enough capital market financing, as investors in these markets prefer large companies which are less risky and more liquid.

The Bank of England Future of Finance 2019 survey published that:


• 25% of small firms that apply to banks have their loan applications rejected and 6 in 10 would-be-borrowers choose to inject personal funds instead. (BVA BDRC SME Finance Monitor 2018 Q4)


• More than 50% of UK SMEs considered only one provider when seeking a loan and 25% of UK SMEs did not consider other providers because of the ‘hassle’ or time associated with applying for finance, particularly
when finance is needed at short notice. (CMA Retail Banking Market Investigation 2016)


• 70% of SMEs would rather grow more slowly than borrow to grow faster. (BVA BDRC SME Finance Monitor 2018 Q4)


The results from the findings identified that:


• There is an estimated £22bn funding gap for SMEs in the UK (NAO Improving access to finance for SMES, 2013)


• The informational advantages an SME’s existing bank holds over other potential lenders is a barrier to searching for credit (CMA Retail Banking Market Investigation 2016) SMEs want greater access to a more diverse set of financing options and some new firms are trying to harness novel data sources to provide it.


How can SMEs access alternative finance?


Invoice discounting platform, Populous World ,could improve SME access to finance . With Populous World, working capital can be immediately unlocked from a firm’s unpaid invoices, enabling SMEs to build up a richer credit file and fund growth and sustainability.

Populous World’s innovative funding platform lowers the barrier to entry in the market for SME lending and gives SMEs access to the cash they need to stay competitive in their fields.


>> Is your business in need of fast, short-term financing? Do you need to access cash faster than your customers pay you?

Populous World is an Invoice Finance provider that unlocks working capital for UK businesses.

Bridging your business’s cash flow gap is something that Populous World excels in delivering, providing you with the funding tools to grow and sustain your business.

For more information, visit us or contact a member of our funding team: [email protected]


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