But according to research highlighted in the British Business Bank’s Small Business Finance Markets report earlier this year, 70 per cent of small and medium sized companies in the UK prefer to grow at a slower rate, rather than borrow and grow faster. We need to raise confidence to connect ambition with finance for growth.
Getting investment for your business does not have to be as scary as going into the Dragons’ Den, which is comparable to the angel investment process. There are plenty of ways to raise equity or debt finance and access support – the challenge is knowing where to look, making the time to find out about them, and getting investors ready.
Many commentators frequently describe a so-called finance gap for smaller businesses across the UK. Yet as a professional investor, I see first-hand the wide array of finance options that are now available to businesses.
The British Business Bank is closing the growth finance gap to a material extent through interventions such as its Enterprise Capital Funds programme, which is designed to increase early stage venture capital and has a total investment capacity of around £1.2bn. But there is still a knowledge gap among firms and their traditional advisors. Many businesses simply aren’t aware of the finance options available to them. In fact, according to new polling carried out by Populus on behalf of the British Business Bank, a third of businesses in the UK are actively looking to grow this year, but have no idea how to achieve this.
Among those that were aware of or had used finance options to fund growth, a traditional loan from a bank was still the most common finance option reported. Often, however, a refusal from one of the bigger banks is the end of the search for finance.
According to the poll, older business owners were significantly less likely to be aware of or to have used alternative growth finance options than their younger counterparts. One in five millennials polled, for example, had considered crowdfunding, compared to fewer than one in 20 over-35s.
Many business owners in the UK also say that they are uncomfortable with the idea of selling a stake in their business to finance growth, leading to the involvement of new stakeholders. Just under half (44 per cent) of company directors surveyed said that they had never considered selling a stake in their business to fund growth.
But owning 80 per cent of something which is growing is clearly better than 100 per cent of something which is not. Having an investor also helps bring expertise and skills into your business that you might not otherwise have access to. Encouraging growth and building the number of scaleup firms is key to economic success. Research by the Scaleup Institute estimated that a one per cent increase in the number of UK scaleups would add 150,000 net new jobs and £225bn additional gross value added by 2034.
The British Business Bank helps smaller businesses look beyond the norm to explore all their finance options. We know that every business has its own growth ambitions – some vast, some modest – but we don’t believe there should ever be a limit on ambition.
That’s why the Bank has launched the Finance Hub – a new interactive website dedicated to providing independent information on finance options for scaleup, high growth and potential high growth businesses to help them see what’s really possible.
Much of the hesitance to grow is down to unwarranted fears about how to finance growth ambitions. I'll be joining the British Business Bank and a panel of experts live on the Bank’s Facebook channel on Monday 24 September at 7.30pm to discuss potential funding choices to suit your business, and hopefully dispel some of these fears.
As a country, we need to get comfortable with the idea that it’s not only good to grow, but that this can be done in a sustainable way if companies explore the finance options available to them. By doing so, we will generate bigger companies and more employment opportunities for the nation as a whole.