More than half have been rejected when looking for funding
Many cite a lack of support during the pandemic
Large swathes require funding for growth
East Midlands-based SMEs have an urgent need for cash, but are being turned away from many ‘traditional’ lenders, leading to the risk of a major funding gap as they strive for growth post pandemic.
New data from Allica Bank shows that 45% of Midlands-based SMEs will require additional funding within the next 12 months, but that more than half (58%) say they have previously been rejected when applying for extra cash. The deficit in funding will potentially hamper recovery and growth in the region, only to be compounded by the end of the UK’s furlough scheme.
In response to the findings, Allica believes new approaches to how banks assess businesses for finance and wider business funding schemes need to be urgently adopted to protect the 6 million UK SMEs1 post pandemic.
Explaining how current processes are not up to scratch, Reena Pithwa, from Allica Bank’s Midlands relationship management division, says: “While some businesses rejected for funding may not have been viable, the high percentage suggests a wider issue where business performance and credit ratings are not being taken in the context of the pandemic. Instead, banks need to start taking a more forward-looking approach, using other data and information to assess the creditworthiness of a business.”
The survey results also demonstrated that more than one in five (21%) of businesses felt that they did not have access to adequate support from their bank during the pandemic and that only 30% feel completely confident in obtaining funding from their existing lender.
“While invaluable for some businesses, emergency covid loans have dominated the resources of many banks, who have then lacked the capacity to support financing business growth and the many businesses in our region that have been able to adapt and perform well during the pandemic,” she says.
“With 45% of SMEs knowing they will need financing over the next 12 months and a further 17% not being sure, it’s clear that real, expert support from a dedicated relationship manager – someone who truly understands the businesses the bank is lending to – is going to be more important than ever in the months and years ahead.”
Of those SMEs looking for funding, most Midlands businesses (37%) are looking to invest in new equipment, 18% to recruit new people, and a similar percentage to buy or upgrade premises. SMEs are also looking to invest in in marketing and sales (15%) and to support cashflow challenges (13%).
“The results paint a very positive picture for the region,” concludes Reena. “The vast majority of funding is being sought for growth and expansion, rather than recovery. A requirement that needs support if we are to see the East Midlands bounce back as it should.”
The survey was conducted by Allica Bank and the specialist small business magazine and media platform SME Today.
*Survey conducted in June 2021, including 128 SMEs based in the Midlands.