A recent survey conducted by Novuna Business Cash Flow among 500 SMEs in the UK highlights that 33% of small and medium-sized enterprises (SMEs) urgently need financial support in the next year to sustain their operations. This underscores the economic challenges facing businesses and emphasizes the importance of exploring diverse funding options beyond personal borrowing and traditional bank loans.
SMEs FORCED TO TURN TO PERSONAL BORROWING AND BANK LOANS
This survey underscores the significant dependence on personal sources of finance among SMEs, with 19% resorting to utilizing their personal savings, borrowing from acquaintances, or re-mortgaging properties to meet financial needs. These personal borrowing methods represent the most prevalent forms of funding, closely followed by secured bank loans, which constitute 17% and are a conventional avenue for business finance. However, exploring other cash flow finance options could potentially offer solutions to stabilize SME operations.
45% OF SMEs STRUGGLING DUE TO LATE PAYMENTS FROM CLIENTS
The survey identifies a significant issue: 45% of SMEs experience adverse effects on their business cash flow due to delayed payments. Business cash flow refers to the net cash and cash-equivalents moving into and out of a business. In the UK, where prompt payments are crucial for operational health, delays in payments severely disrupt business activities.
Despite these challenges, only 2% of SMEs have utilized or applied for alternative cash flow financing options such as invoice finance and accounts receivable factoring since November 2023. These financing solutions involve advancing funds against outstanding invoices to improve cash flow. The limited uptake suggests a possible lack of awareness and understanding of these financial alternatives that could potentially alleviate cash flow issues arising from delayed payments.
37% BELIEVE THAT EXTERNAL FUNDING IS MORE CRUCIAL THAN EVER DUE TO UNFAVOURABLE ECONOMIC CONDITIONS
With 37% of SMEs indicating that worsening economic conditions are making external funding more crucial than ever, and a stark 34% admitting they would have to close without this essential support, the importance of comprehensive financial literacy among SMEs is clear. There is an urgent need for concerted efforts to ensure that SMEs are fully informed about the various financing options available to them, enabling them not only to survive but also to thrive in challenging economic landscapes.
John Atkinson, Head of Commercial and Strategy at Novuna Business Cash Flow, emphasises the benefits of exploring diverse financing options, particularly cashflow finance. “Our survey underscores the critical role that access to business finance plays in sustaining companies, and the variety of options used to stay afloat. Business cash flow finance can offer a lifeline to companies struggling to make ends meet due to delayed payments. It’s essential that more SMEs become aware of and understand how to leverage such options effectively. At Novuna Business Cash Flow, we are committed to helping businesses flourish by easing the pressures of cash flow challenges associated with late or outstanding invoices.”
