- Small British firms would hire more than 500,000 new staff if they could get more cash from banks, a new study reveals today
- Dynamic small businesses on the verge of major expansion say their potential is being stifled by banks’ refusal to lend
- A survey of UK small businesses has identified up to 1.5 million – dubbed “Caged Tigers” – who are unable to hire more staff because of the way banks are choking off credit
The potential for small businesses* to create more than 500,000 (546,480) new UK jobs is being stifled by poor access to finance according to a study released today. In fact 30 per cent of small businesses have had to lay off staff as a result of a lack of funding and the economic crisis.
The frustrated growth potential of the UK’s small businesses was revealed in the first quarterly Funding for Growth study conducted by Funding Circle, the marketplace where people lend money to businesses. The study of 500 small businesses, the first of its kind to quantify what the impact of lack of finance is on small businesses, identified the potential of Britain’s “Caged Tigers” that are trying to throw off the straightjacket of high street business banking.
Small businesses are poised for growth but constrained by a lack of finance. A third of those surveyed (33 per cent) would increase staff numbers if they could obtain finance, while 31 per cent would seek to grow their business more generally.
Businesses that would increase staff numbers would do so by an average of 12 per cent. With SMEs responsible for employing approximately 13.8 million people in the UK**, improved access to finance for the 1.5 million “Caged Tigers” could unlock more than 500,000 new jobs and drive down unemployment to pre-recession levels. This month’s official ONS figures show that unemployment dropped by just 7,000.
James Meekings, co-founder of Funding Circle said: “With the right support, these frustrated businesses could be the future drivers of our economy, with the ripples of job creation being felt throughout UK industry. Not only would the economy feel the direct impact of a boost in employment, but a quarter would also use finance to increase stock, supporting businesses throughout their supply chain.
“Instead, they risk becoming a lost generation of “Caged Tigers” stifled by a lack of business finance.”
Entrepreneur and Carphone Warehouse co-founder Sir Charles Dunstone added: “Many businesses throughout the UK are ready for growth, but have struggled over the last few years to obtain the finance they need. When I first started in business, access to finance was much simpler, but times have changed and there is a risk that a group of exciting businesses will now be unable to reach their full potential.”
Small businesses have lost trust in banks
The study also revealed concerns from small businesses about the process of and access to bank loans.
- 56 per cent said the recent banking scandals have caused them to lose trust in the banks
- 24 per cent said there is nothing the banks can do to regain this trust
- 34 per cent believe the banks don’t want to lend
- 37 per cent need access to fast finance and believe the banks are two slow
- 31 per cent believe banks are too expensive
- 15 per cent have had to adjust their plans for growth as a result of a lack of finance
James Meekings continued: “Banks have betrayed their position of trust by putting personal gain ahead of the needs of the UK’s small businesses.
“It is unacceptable that five banks continue to account for 90% of all lending to small businesses, giving them a stranglehold on the potential for massive growth. The demand for greater competition in the market must be accelerated.”
In light of these figures the Institute of Directors (IoD) also welcomed the emergence of alternative methods of finance for small businesses.
Simon Walker, Director General of the Institute of Directors said: “Many businesses find that traditional bank lending is either too complex to access or simply not available at all. New, alternative sources of finance made available by new technologies are a welcome boon for many companies. This is a great example of disruptive business models breaking open a market that had become hidebound, which means small companies can grow more easily and more swiftly than before.”
Alternative finance case study
High Access Solutions (HAS), a provider of permanent and temporary access safety systems (such as safety nets and access towers), is based in Sheffield and run by Peter Ashburner and his daughter Lucy Hyde. The company has 11 employees and recently needed finance in order to purchase three new Tracked Access Platforms.
The business was able to borrow £135,460 through Funding Circle and increase staff head count by approximately 25%. The purchased machines have quickly become the business’ most commonly used asset. HAS continues to grow and is now one of the largest hirers of this type of equipment in the UK.
Lucy Hyde said: “Our business has grown rapidly and without being able to access finance we would not have been able to sustain our growth. As a result of securing finance we have been able to employ a further 4 members of staff to support our growth and maintain our industry leading service levels.”