It is crucial for the growth of the UK economy that the country’s 5.4 million smaller businesses continue to seek finance in order to invest, grow and prosper. Similarly, it’s critical that viable start-up businesses have access to funding to enable ventures to be launched. Many SMEs remain unaware of the funding that is available for them outside of the largest banks (HSBC, Barclays, Lloyds and RBS groups), which accounted for 80% of small business loans in 2015.  The British Business Bank’s 2015/16 Small Business Finance Markets report found that more than half of UK smaller businesses go only to their main bank for a loan when looking for finance, and do not even consider other options.

Demand for cash flow finance is on the rise

Demand for cash flow finance is on the rise, as more UK SMEs turn to alternative finance providers. Funding data shows there is an increased demand for finance, with the total funding offered to businesses in the tax year commencing April 2015 increasing to £18 million, totalling £841 million, compared to £823 million in the previous year.

Seasonal Lending Trends

Lending statistics show three clear peaks in demand from SMEs for funding increases. Each year the number of applications rise considerably in April, July and October.

Banks have become more risk averse and it can be challenging for smaller business to gain access to crucial funding. John Atkinson, head of commercial business at Hitachi Capital Invoice Finance said:

Many of our customers have found it necessary to pursue alternative routes to finance, as banks look to reduce the risk profile of their lending portfolios. In general, the days of firms using an overdraft facility as a ‘stop-gap’ to ride out cash flow disruption are over, businesses must act now to produce accurate forecasts for the year ahead.


As April is the beginning of the tax year, traditionally with a wave of new government legislation it can be a challenging period for SMEs. This year the introduction of the National Living Wage prompted an increased wage bill for many businesses; a high proportion of which are still bridging the transition into pension auto-enrolment. New immigration laws appeared to indicate a strong likelihood of increased recruitment costs for firms looking to hire and retain talented staff.


Similarly, July can be a period of higher demand or lending. Atkinson said:

When forecasting activity and productivity during the summer months, the impact of the holiday season must be acknowledged. Often, a depleted workforce during July and August can have a negative effect on business continuity, with limited trading activity and the reduced ability to chase prompt payment denting cash flow.


The most prominent rise in demand for cash flow finance occurs during the month of October, as businesses gear up to capitalise on emerging contract opportunities. While this period typically yields an increase in corporate deals, it is also a busy time for retailers investing in stock in preparation for inflated sales during Black Friday and for the pre-Christmas period. For many businesses, the beginning of Q4 signals a time to invest and plan for the year ahead. Atkinson concluded:

It is vital that SMEs pay close attention to their working capital during 2016 and retain the agility to react to market changes. The possibility of an EU referendum, which is due to be held as early as June, alongside expected rises in interest rates could impact business confidence. For firms that manage to protect cash flow, either organically or via the securing of external finance, success, stability and growth await.

SMEs turning backs on traditional lending

Nearly seven out of ten SMEs plan to take out business finance in the next 12 months to facilitate growth.

Recently, alternative finance lender Liberis surveyed more than 300 SMEs and found that bank loans are now the least used option with just 15% using them, while non-traditional financing options accounted for almost half (46%) of SMEs opting for this route.

In the hospitality industry, some 42% of pubs, restaurants, hotels and B&Bs, indicated they would use finance to undertake refurbishment projects, with around a fifth of those seeking to borrow between £10,000 and £20,000.

The hotel and B&B industry make up around a quarter (24%) of SMEs looking to borrow over £100,000 (24%).

Meanwhile, salons and other beauty businesses opt to use business finance to purchase new equipment (56%), as do chemists, opticians and dentists (64%).

Rob Straathof, CEO of Liberis, which recently partnered with the government-backed British Business Bank to provide up to £10m to support its financing of small businesses, said: 

Despite the economic uncertainty surrounding Brexit, it’s business as usual for the vast majority of SMEs. Small businesses are continuing to borrow to expand their business, finance refurbishment and new equipment as they remain positive about future business growth SMEs are also increasingly turning away from bank loans in favour of alternative finance.

Asset finance

One particularly fast-growing area for UK small business funding is asset finance. Our 2015/16 Small Business Finance Markets Report showed that new asset finance volumes with SMEs have steadily increased over the last 4 years. Data from the FLA shows new asset finance volumes were £16.3 billion in 2015, up from £12.7 billion in 2012.

Asset finance enables smaller businesses to purchase or hire high value equipment or assets over an agreed period of time, typically plant and machinery – meaning they do not have to make such a large initial investment.

Case Study: Shire Leasing & Go-Direct

Tamworth based, Shire Leasing is the UK’s largest privately owned funding house for B2B equipment leasing and asset finance, Shire’s portfolio now has over £73 million of receivables. In 2014, the British Business Bank provided Shire with £40 million over three years to help provide additional asset finance to small businesses.

One of the businesses Shire helped was Wolverhampton-based Go-Direct. Gary Oliver initially founded Go-Direct as an employment agency specialising in recruiting HGV drivers, but wanted to diversify his business to include running training and support courses for drivers. He approached Shire Leasing for finance that would allow the company to lease a fleet of 40 new HGVs. Today Go-Direct is spread across two sites and employs approximately 50 full-time employees as well as numerous sub-contractors and temporary workers – it’s a healthy, growing business.

Government tax schemes boost UK crowdfunding scene

Traditionally financing a business venture involved asking a few people for large sums of money. Crowdfunding is a way of raising finance by asking a large number of people each for a small amount of money. For example, by using the internet to talk to thousands – if not millions – of potential funders. Fund seekers will set up a profile of their project on a website and can use social media, alongside traditional networks of friends, family and co-workers, to raise money. There are three different types of crowdfunding: donation, debt and equity.

Research from Growthdeck, a recently-launched equity crowdfunding platform, shows that the success of the UK’s crowdfunding industry has been driven by the Government’s tax efficient investment schemes, such as the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS). Some 96% of all investment opportunities on crowdfunding platforms are in these schemes and offer significant tax breaks to investors in exchange for funding SMEs.

As businesses must have less than £15m in assets to comply with the EIS (and just £200,000 for SEIS), Growthdeck explains that its research illustrates that crowdfunding is focused on the smallest segment of the SME market.

EIS and SEIS provide attractive tax breaks for investors

Gary Robins, Co-founder and CEO of Growthdeck, explains:

Crowdfunding platforms have become a vital conduit for small businesses to access the funding they need to exploit their growth potential, providing a much-needed boost to the UK’s SME sector.

These start-ups and microbusinesses are exactly the type of companies that have found it the most difficult to access bank lending – the crowdfunding industry is making great strides to fill this gap.

The rise of crowdfunding has led to a wave of private investment into SMEs across a variety of sectors and increased access to funding can only be welcome news for UK businesses. Crowdfunding platforms appeal to a large pool of investors attracted not only by the exciting opportunities on offer to back SMEs they really believe in, but also the generous tax breaks available.

Government schemes such as the EIS and SEIS offer investors attractive tax breaks which remain vital in facilitating growth of UK SMEs.

With bank lending remaining in short supply for many start-ups and early stage businesses, the EIS and SEIS schemes are vital in encouraging investment to ensure that SMEs can implement their growth plans and their ambitions for success have a chance of being turned into reality.

With some companies eligible for both, Growthdeck’s survey data suggests that two thirds of all investment opportunities promoted on crowdfunding platforms claim to be EIS- eligible, while 39% claim SEIS eligibility.

Watch out for our Crowdfunding series to find out more about new entrants to the UK banking market.