Alternative lender ThinCats surveyed more than 500 medium sized UK businesses about their experiences when seeking external funding: how often, how much, what for and where from.
The results overall showed a generational gap both in how new and established companies, and young and older bosses approach finance:
55% of businesses approached a high street bank as their first source for business finance, while 30% of businesses never seek external funding. There was a fairly even split between using an accountant, commercial finance broker or corporate finance adviser for funding advice or handling the search themselves.
Working capital, fixed asset purchase, growth capital, acquisition and refinance were the most common reasons for seeking funding. A competitive interest rate was the most important factor when selecting a lender, and 27% had sought funding within the previous 12 months.
Scratch beneath the surface, however, and the data reveals a number of more nuanced findings.
For example, for businesses less than 10 years old, only around a third (31%) approach their bank first when seeking funding compared to 61% for businesses established between 10 and 20 years ago, rising to 71% for those over 35 years old.
Younger businesses were also much more likely (22%) to pick an alternative finance platform as their first-choice lender compared to just 4% of the oldest SMEs.
Likewise, in businesses where decision makers were aged under 35, approximately a third (35%) approached their bank first, contrasted with 70% for those aged 55+.
When you slice the data by industry sector, further clues are revealed. Preference for non-bank lenders is much higher with service-based businesses such as those in the IT, telecoms, media and marketing sectors when compared to sectors such as real estate, retail and manufacturing.
Traditionally, high-street bank lending focuses on asset-backed financing that requires businesses to provide a physical asset (such as equipment or property) as collateral for a bank loan. Yet, for many businesses in the modern economy with few tangible assets, the traditional lending model does not align with how their business actually works: whilst it may be highly cash generative, it is penalised for having insufficient physical assets.
Furthermore, although offering a competitive interest rate was, on average, the most important factor, for those businesses using corporate finance advisers, being able to offer a bespoke solution was the most important factor. Similarly, for businesses using commercial finance brokers, it was important that the funding application was considered by real people and not based solely on financial data.
Damon Walford, ThinCats chief development officer, said: “This is the first time we have researched mid-sized businesses on such a scale. It shows that for large, long established businesses with significant tangible assets, a traditional bank is still their first port of call.
“However, younger businesses are waking up to the benefits of looking beyond their bank. This may be because they are more open to trying new things, although we suspect it is more about the service-based nature of many of these modern economy businesses which do not fit the asset-reliant models of the traditional lenders.
“It’s critical that UK entrepreneurs can access the modern funding solutions needed to support a modern economy.”
*All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 512 adults. Fieldwork was undertaken between 13 – 27 May 2019. The survey was carried out online. The figures have been weighted and are representative of British business size.