A troubling combination of rising inflation, supply chain disruptions and tighter financial conditions is causing headaches for businesses across the UK, with small and medium-sized enterprises (SMEs) feeling the strain particularly. And don’t forget about the upcoming budget, which could lead to even more pain.
With such severe economic headwinds, it’s no wonder business owners are searching for the best growth strategy. In a recent interview on Yahoo Finance Future Focus, Simply Asset Finance Chief Operating Officer Ylva Oertengren shares insights on how small and medium-sized businesses can overcome these challenges and achieve growth in the current environment I did.
The importance of small businesses in the UK economy
Small businesses are the backbone of the UK economy, making up 99% of all businesses and employing over 60% of employees. Ertengren emphasized their important role, explaining that they contribute significantly to private sector sales. “If we could make it a little easier for them, what would that mean for growth?” she asked, emphasizing that empowering small businesses can improve the economy.
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Despite this importance, small businesses struggle to obtain financing, which limits their ability to grow. Ertengren stressed that three-quarters of bank loans go to large companies, leaving small and medium-sized businesses underserved. He pointed to the gap between ambition and funding, saying: “Too often the lack of growth from this part of the economy is due to a lack of funding rather than a lack of ambition.”
Improving productivity for small business growth
Ertengren outlined a clear path to increased productivity for companies looking to grow. “To grow, we need to increase our profits. To increase our profits, we need to produce more on our current cost base,” she said. However, achieving this will not be easy, especially given continued labor shortages and rising costs.
For many small businesses, the answer lies in investing in new machinery, technology and skills to unlock their growth potential. However, it can be difficult to raise the necessary funds for such investments. Eltengren said business investment in the UK remained below the G7 average and productivity was lower than other developed countries. He emphasized that addressing this issue is essential to enable small and medium-sized enterprises to grow.
Find the right financing solution
One of the biggest challenges small businesses face is finding financing to meet their specific needs. Ertengren pointed out that small businesses are not a homogeneous group. Financial institutions vary in size, structure, and stage of growth, making it difficult for traditional financial institutions to meet all needs. From sole traders to businesses with hundreds of employees, small and medium-sized businesses require flexible and customized financial products.
Mr. Ertengren expressed concern about the increasing reliance on overdrafts and credit cards, which many small and medium-sized businesses rely on to finance their operations. “It’s clear that you can’t execute your growth strategy with an overdraft facility,” he said, stressing the importance of finding the right type of financing to drive long-term growth.
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When asked how small businesses can take steps to move away from overdraft and credit card dependence and ensure more sustainable options, Mr. Ertengren urged business owners to He advised them to thoroughly understand their financial needs and growth cycles and seek out a lender that truly understands their business. “Credit scores alone don’t do justice to customers in this space,” he said, stressing the importance of working with lenders who evaluate business potential beyond traditional metrics.
Customized financial solutions for small and medium-sized businesses
One of the key takeaways from Mr. Ertengren’s interview was the importance of partnering with a financial provider that understands the unique challenges faced by small and medium-sized businesses. He emphasized the need for lenders to deploy advanced technology and data analytics to value companies in a more nuanced and accurate way.
To overcome the barriers faced by small and medium-sized businesses, Mr. Ertengren recommended seeking out a specialized lender with a deep understanding of the sector and the ability to provide customized financial solutions. These lenders do more than just provide capital. They can provide the strategic insight and support small businesses need to grow during difficult times.
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He also noted the growing presence of alternative financial institutions that have the right approach but lack the scale of large financial institutions. These new entrants are offering more flexible and innovative products, giving small businesses the opportunity to access the capital they need to grow.
Overcoming reluctance to borrow
Mr. Ertengren said that in the current environment, many small business owners are reluctant to pursue loans for fear of loan rejections or bureaucratic delays. This hesitation can lead you to rely on expensive, short-term options like credit cards that aren’t suitable for long-term growth.
When asked about next steps for business owners who feel trapped in this cycle, Oltengren emphasized the importance of understanding your business and your growth ambitions. He advised business owners to carefully assess their financing needs and seek out lenders who share their passion for growth. “Find a lender who can look beyond your credit score,” he said, encouraging small businesses to work with financial institutions that can offer loans based on business potential rather than strict credit criteria. .
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Mr. Ertengren then highlighted opportunities for collaboration between large financial institutions and smaller, more agile financial institutions. By leveraging technology and data, both types of financial institutions can better serve small businesses and give them access to the capital they need to grow. He highlighted that this partnership model could be key to unlocking growth for small and medium-sized businesses, driving innovation and strengthening the UK economy as a whole.
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