By working with businesses every day, it is clear to me that we have an SME sector that is making a significant contribution to the economic growth of the region through growth and scale.
Growing and in particular scaling a business is no easy matter. Scaling creates risk, so inexperienced business leaders battle constantly with the day to day challenges this brings.
One of the most common challenges that these businesses encounter is cash. Access to finance is often required to fund growth or indeed smash through that “glass ceiling plateau” they may have hit.
It is not unusual to sit with directors and owners of SMEs who cite that the lack of finance is holding back their expansion plans and preventing them from taking full advantage of the opportunities that exist in the sectors in which they operate.
Rarely has there been more opportunity and focus by lenders and investors for business leaders to obtain the finance they require to take that next step. Yet difficulty to access finance is a constant challenge and a recurring reason highlighted by business leaders as to why they cannot grow.
As a Scaleup Partner on Scaleup North East, over the past 18 months, the SME’s I have been working with, have consistently demonstrated that this barrier to finance is generally broken down by (although not limited to) the following:
The most obvious is that shareholders, owners, directors have a reluctance to give away equity in their business or they have a fear of taking on debt.
Shareholders and directors are not aligned in their appetite for risk and reward.
There is a significant lack of knowledge and awareness within SMEs as to the range of funding options available to them. There can also be negative perceptions of how they work, what the impact is and the requirements on the business.
Some SMEs are not even aware of the various revenue, capital and other grant funded schemes offered through funders, providers, council and universities.
Businesses do not have the internal process, controls and frankly understanding of their own businesses to give investors or lenders the confidence to deal with them and it becomes very apparent in their applications.
SMEs cannot afford to pay for specialist advisors to assist them in putting an application together.
Business have no tangible assets to offer as security.
Businesses apply for lending for the wrong reasons.
Whilst it is correct that we try to help businesses, there are so many events, pitching opportunities, workshops and advertisements it can be totally overwhelming for the business owners as to where to start and who to trust.
Financial institutions and funders themselves and the way in which they evaluate applications, along with the inconsistency we see in decision making. The reluctance to invest from growth funds specifically designed to stimulate and grow the SME market can be frustrating.
Growing SMEs and in particular scaling businesses are critical to the long term growth and economic prosperity of the region. Many of these businesses will become the large businesses of tomorrow.
The onus is on us to provide businesses with clear and concise information, educate business owners and give them the tools, information and assistance to make informed decisions that ultimately will lead to them growing their businesses, creating job opportunities and contributing to the region’s economy.
RTC North is delivering Scaleup North East in conjunction with the North East Local Enterprise Partnership (LEP) and is part-funded by the European Regional Development Fund (ERDF). The programme is aimed at supporting North East-based businesses that can demonstrate both the hunger and the potential to achieve high levels of growth. Click here for more info.
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