A funding gap of £4.3 billion is holding back small and medium-sized businesses (SMEs) and preventing economic growth, according to new research released today by crowdfunding business Money&Co.
The study, conducted by research agency Populus, asked senior management at UK SMEs about their last loan application, comparing it to the average sum awarded. The discrepancy reveals a funding gap of £4.3 bn for the UK's 404,175 SMEs.
For small firms with between 10 and 49 employees, the average funding gap amounted to £11,752 per business. The average medium-sized business (50 to 249 employees) experienced an average funding gap of £69,961.
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 [which] could potentially stifle the UK recovery."
Of the 301 small and medium-sized businesses polled across the UK, close to two-thirds (64%) agreed that the traditional banking system is broken, with more than half (51%) saying that bank bureaucracy acts as a deterrent when applying for a loan.
Despite the lack of confidence in UK banks, the research revealed that 72% of SMEs would still approach banks first for a business loan. Only 4% would consider crowdfunding as an initial means to secure finance, while 5% would first approach an angel investor. Eleven percent of those polled would consider using a Government Enterprise Fund.
John Allan, national chairman of the 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."