Tight Bank Lending Means Finding Creative Online and Offline Fundraising Options for Small Businesses


UK Ministerial Business Secretary Encouraging SMBs to Get Creative With Funding Options and Resources

The latest controversial comment from Vince Cable, the UK ministerial business secretary, serves as a wake-up call to SMEs looking for bank lending. Cable recently told the UK newspaper The Financial Times, “One of the anxieties in the business community is that the so-called ‘capital Taliban’ in the Bank of England are imposing restrictions which at this delicate stage of recovery actually make it more difficult for companies to operate and expand.”

The unspoken message which seeps through his words is: be creative and don’t wait for the bank manager to approve that application. 

Small businesses appears to still power the UK’s economy, given that there are there are 4.8 million SMEs in the country which employ around 60% of workers who accounts for 50% of the nation’s GDP. The UK’s GDP is still considered by experts to be well below its pre-recession peak.

In reality, businesses in the UK rely heavily on bank funding to develop their resources and markets, as well as expand operations and staffing levels. UK businesses generate up to 80% of their funding from their bank. It would seem logical that in order to succeed there needs to be more money pumped from the banking system through to SMEs which will in turn allow the general economy to prosper.

However, a snapshot of the UK’s government business lending practice throws up a very different picture. The Bank of England’s lending policy has already hit businesses hard. The Bank’s April trends in lending survey highlights that net lending to businesses fell by £4.8bn over the first 2013 quarter, with lending down by £2.8 billion in the month of February.

In Ireland, the situation is improving. The Bank of Ireland has announced that it is approving Euros £1,89 billion released in funding to SMES in the first half of 2013—which is 18% up on the year on year funding in the first six months of 2012, so this would seem is good news.

Yet, all is not what it appears.

It seems there is a postcode lottery about lending to SMEs as outlined in the recent British Banker’s Association data which was published for the first time this week. The stats reveal that Britain’s banks cut bank on lending to SMEs in all but 22 postcode areas in the UK. Lending fell in more than 80% of the country’s 120 postcode areas between 2011 and 2012. Measured across wider areas, it dropped in all nine regions of England, as well as in Scotland and Wales. The revelation has prompted to a backlash that banks are cherry-picking which business areas receive funding and thus which parts of the UK economy get to improve, and thereby affects statistical labor increases in relation to the national average.

So what does this all mean for SMEs which are not only struggling with the bank funding application but also reeling under the knowledge that government lending is potentially restricted and skewed?

It’s back to the drawing board for a list of creative business generation ideas which can come in a variety of external forms or through organic business development.

Here’s an overview of some measures which proactive SMEs can take to protect their funds and source new lending through non traditional avenues:

Angel Funding

More comfortable risk zones could be in the form of pitching to genuinely interested VC Angel investors. For instance, in the UK The Angel Co Fund states it will invest up to £1 million in SMEs. It was just announced that Angel Co has grown to feature applications from businesses across the country. SMEs and first-time syndicates can benefit from equity investments from £100,000 to £1 million; it also gives SMEs access to networks of angel investors.

Seed/Early Stage Investment and CrowdFunding

While bank lending may not be the way forward, the government is still trying to make applications appealing to growing businesses which aren’t quoted on the stock exchange. And there seems to be some interest gathering. According to the latest data a total of 4,075 companies applied to HMRC in 2012/13 for approval under the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), compared to 2,147 applications the previous year.

Heading down the seed route may mean investing real resources in making these applications pay off. However, it’s reassuring to know that the UK government is providing creative routes while attempting to get the Bank of England to release more in to the economy form it own pot.

Alternative ideas could also feature crowdsource funding although this is unknown territory for a lot of small businesses. The route is getting more popular with stories from the successes from internet operations run through registrations with popular firms such as Kickstarter, Seedr, and Crowdcube.

Market With Trusted Exposure

Growing may be focused on the need to be getting new lines of cash in the bank ,and selling equity. Though SMEs can do well to grow through their organic strategic marketing and awareness campaigns which could potentially spark additional business partnerships and naturally attract funding from interested strategic parties. SMEs can brainstorm around expanding product lines which are already performing well. This way new services and related offers can whet the appetite of a new market and create a whole new source of brand customers.

Coming up with brand themes to effectively promote products and services may also be worth investing time so that exposure in magazines, with influencers, customers and through online media gives attention to the founder and the organisation in general. The all-important brand messages, product news and offers can also also be ported to existing contacts who are kept up-to-date in a systematic manner through customer relationships management systems which are made specifically for SMEs to thrive across multiple marketing channels. Some of the players which are best suited for SMEs include: TeamLab, ContactMe, Maximiser, Zoho.com, and Salesforce.com.

Hire Locally Or Globally?

With small funds in hand, SMEs should also think about how and where they put the labor effort in the current critical business environment. Sometimes hiring locally may be the best option though with the explosion in mobile devices and the rise of the ‘digital natives’ skill sets can nowadays be found by the hour  and throughout the world.

With the mass redundancies in 2009, many people have set out to carve out their own freelancing and solo working niches. Work is for offer at competitive prices through websites such as Elance and Peopleperhour. In doing so the savvy SME owner can cut out the hustling recruitment consultant which may be a potential a drain on limited resources.

Maximize Free Online Tools To Refocus Existing Funds

Thinking about which tools are essential in the business can also go a long way to saving on pounds and dollars for when the next round of funding does come along. Luckily, SMEs have a wealth of free online tools which can make them become more thrifty and astute in the way they handle money. Free online tools which have helped millions of SMEs deliver productivity and support goals and contacts include:

  • one-to-one VoIP conference calling, Skype
  • Kind.me which gives the chance to send gifts to customers free of charge
  • Google Docs for documents, presentations, spreadsheets, forms and more
  • Wunderlist for task management
  • Wave Accounting for accounting in the cloud
  • Slideshare for digital presentations and knowledge sharing
  • SurveyMonkey for market research
  • Trello for small business planning
  • LinkedIn for recruitment and influencer sourcing
  • Freshbooks for online invoices through which time tracking is free for up to the first three users
  • Dropbox, which is very useful for storing, sharing and syncing files

Image: iStockphoto

About The Author

Laura Abrar writes about technology and marketing. She developed her career in public relations and communications with global leading and challenger technology brands, as well as in digital marketing for firms in the United Kingdom. Connect with her on Twitter at @LauraAbrar and LinkedIn.