Nearly two-thirds (64%) of small and medium-sized businesses across the UK think the traditional banking system is broken, according to new research highlighting the challenges small businesses face when trying to access finance.
The study, conducted by Populus on behalf of crowdfunding business Money&Co, concluded that a funding gap of £4.3bn is holding back SMEs and preventing economic growth.
Senior management of SMEs were asked about their loan application, which was compared to the average sum awarded. The discrepancy revealed a funding gap of £4.3bn for the UK’s 404,175 SMEs. For small firms with 10-49 employees, the average funding gap amounted to £11,752 per business.
Of the 301 SMEs polled, two-thirds agreed the traditional banking system was broken, while 51% said bank bureaucracy acted as a deterrent when applying for a loan.
However, 73% of respondents said they would still approach a bank for a business loan, but only 4% would consider crowdfunding as an initial means to secure finance.
Nicola Horlick, CEO of Money&Co., said:“This research clearly shows that the banks are not providing UK SMEs with the finance they need. Although recent figures indicate that the UK economy is beginning to experience growth, we cannot ignore a funding gap of such magnitude.
“Crowdfunding can help address the banking shortfall. The sector is experiencing a surge in interest and demand as businesses start to recognise a real alternative route to finance exists.”
John Allan, national chairman, Federation of Small Businesses, said: “Opening up banking sector competition through alternative finance providers is something the FSB has long called for. The FSB’s own research has shown many businesses are still refused finance, even as the economy is getting stronger.
“We want to see the banks and government signpost businesses to using alternative finance providers to ensure they get the cash they need to grow.”