Finance – or the lack of it – is an issue for businesses of all sizes.
It is the biggest headache of all and generally, it is the SMEs whose cash flow and balance sheets are in the most perilous state – and at exactly the wrong moment.
Being cash-poor stifles innovation and development, which has a negative impact on the UK pushing the technological barriers and striving forward as part of the government’s wider Industrial Strategy.
Research done via the British Business Bank has shown that many companies are loan averse. The bank’s 2017-18 Small Business Finance Report noted that the number of applications for loans from traditional lenders had fallen; that only 43 per cent of SMEs were confident their application would be successful, while, and of greater concern, 70 per cent of SMEs were willing to accept slower growth than borrow.
Many avenues of funding are now available including Business Angels, equity releases and Patient Capital. The government is also playing a key role since the launch of the Industrial Strategy back in November 2017, with millions of pounds being pumped into various sectors or money being made available on various platforms.
One of these platforms, that has potentially gone under the radar for SMEs, is innovation loans, which is a pilot scheme being run by Innovate UK.
The pilot is running for two years and has £50m set aside for business innovation projects – it is not there to ease cash flow!
Guidance notes point out that through the pilot, innovation loans will be offered through loan competitions (five in all with £10m each time) to UK small or medium-sized enterprises that want to scale up and grow by developing new or improved products, processes or services.
They can be used for late-stage research and development projects that have not yet reached the point of commercialisation.
For those businesses that want to apply, there is further clarification on what Innovate UK will consider a suitable application under the guise of experimental development. This includes:
- producing plans, arrangements and designs for your products, processes or services
- developing commercially-usable prototypes and pilots
- experimental production and testing of products, processes and services
If the Innovate UK option does not meet your needs – and funds are not accessible elsewhere – another potential route is an unsecured business loan. In recent times this would have been unheard of, but more non-traditional lenders are coming into the financial space to work with businesses.
One lender, aside from offering to make the process swifter, states they will base decisions on recent business performance rather than business plans and forecasts, which means that they offer loans without the need for businesses owners to give personal guarantees and take on unnecessary risk.
For a business that needs that finance to see through an innovation project through to fruition, and has exhausted all other sources, this might just be the solution.
Whatever path you take to grow your business, we recommend that you should seek financial advice.