Do small businesses understand the finance options available to them?

A lack of understanding of alternative forms of borrowing such as asset-based finance could be hampering UK business growth, a study suggests. 

Research of 2,000 small and medium-sized enterprises (SMEs) from Lloyds TSB Commercial Finance shows that there is still a lack of understanding of asset-based finance, compared to more traditional forms of borrowing such as overdrafts, loans and mortgages.

Almost all SMEs (98 per cent) are aware of overdrafts, but only half (52 per cent) say they are aware of asset-based lending.

 The survey also shows that a lack of understanding of alternative forms of finance prevents many SMEs from using them.

Invoice finance, where a firm can borrow against the value of customer invoices, is one of the most popular forms of asset-based finance, but understanding of its benefits among SMEs is low.

While over two thirds (70 per cent) of firms are aware of invoice finance, just over half (54 per cent) say they have a good understanding of it and only 15 per cent have ever used it.

Some alternative products are better understood by businesses. Hire purchase and leasing products, which can help SMEs fund new equipment or machinery purchases, is understood by two thirds of businesses (69 per cent) with 36 per cent having used it.



The top three reasons cited by respondents to use alternative finance are to make corporate acquisitions, boost working capital, and invest in property.
 Source: smallbusiness.co.uk