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Credit movements made by small-business leaders – and the types of financing they’re turning to – have spiked, as leaders turn to alternative financing and personal lines of credit.
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Small businesses turn to alternative financing in droves amid pandemic pressure
13 October 2021
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12 minute read
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The results of ScotPac’s SME Growth Index released last week show that businesses have increasingly turned to alternative financing methods as they emerge from the pandemic, with 66.1 per cent of businesses reporting having turned to new sources of funding, up from 46 per cent to have reported doing so at the start of the year.
ScotPac chief executive Jon Sutton said the move is emblematic of the lasting impacts of the strain placed on small businesses by the pandemic.
“The fact so many SMEs tried new funding avenues shows they realise pandemic conditions are a longer-term proposition that they will have to adjust to,” Mr Sutton said.
The most frequently cited liabilities for new funding sources by businesses were equipment, at 57.5 per cent; to improve cash flow, at 40.6 per cent; and, to pay off debt, which accounted for the decision-making of 34.3 per cent of alternative funding procurements.
The index also found that owners are increasingly turning to personal funds and lines of credit to keep their businesses afloat. Mr Sutton said those doing so should turn to professional advice.
“We’d encourage business owners, particularly if they are relying on personal credit cards, to seek professional advice about more sustainable funding options,” Mr Sutton said.
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“Alternatives could also benefit SMEs funding their business from retained profits as reliance on retained profits can hinder growth, especially if you are facing rapid growth.”
Other types of alternative financing reported to have been explored by businesses were asset and equipment finance, which 38 per cent of businesses said they had tried, along with government stimulus, which 27.6 per cent of businesses reported to have received.
However swathes of businesses continue to be turned away. The index found that about a third of businesses didn’t try new funding options because their applications were denied.
Only one in 10 SMEs had no need for additional funding which, according to Mr Sutton, highlights the “pent-up unmet demand” for working capital in the SME sector.
“Given the pandemic stresses placed on the SME sector, the onus is on financiers to make application processes and ongoing admin as easy and quick as possible,” Mr Sutton said.
“ScotPac has introduced cutting edge technology that allows us to ‘say yes’ to funding within hours and get capital into accounts within a day or so.”
Among the fastest-growing funding methods for new business investment are non-bank lending and new equity, rising by 5 per cent and 6 per cent since September 2020 respectively.
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