

Study Highlights Needs For Debt Demand For Finance To Be Stimulated
A study of 9,000 UK firms has revealed a reluctance to borrow amongst high growth small and medium sized enterprises (SMEs).
The report, published by the Institute of Chartered Accountants in Scotland (ICAS), shows that despite a range of Government initiatives to increase the availability of funding, there are major challenges to encourage companies to sign up for debt and equity finance.
A major finding of the research, which was conducted by the University of St Andrews and the London School of Economics and Political Science, was that 'debt-shy' SMEs are reluctant to borrow funds to grow due to a lack of trust of banks and a resistance to give up control of their business to outsiders
High growth SMEs were also found to prefer access to bank finance rather than equity finance and that they are more likely to use a 'mixed cocktail' of finance combining internal resources and debt.
The researchers make a number of recommendations for both the supply and the demand-side of SME funding, including the need to consider how 'reluctant borrowers' may be transformed into 'willing borrowers' for both debt and equity finance and how the demand for finance may be stimulated in the future.
Dr Ross Brown from the University of St Andrews said: "This research dispels some deeply held misconceptions in relation to high growth SMEs. These firms are predominantly funded by bank debt, not equity sources of funding. While many use bank lending to fund capital expansion, some draw heavily on their internal resources to fund their growth. The fact that many high growth SMEs are 'reluctant borrowers' may be holding back the economy. Stimulating the 'demand' for lending matters for economic growth."
Dr Neil Lee of the London School of Economics added "Policymakers need to carefully consider the way they target initiatives at particular types of firms. General measures to help all firms grow will be more expensive, and less successful, than efforts to improve access to finance for the minority of firms which have the potential to make a disproportionate impact on the national economy. At present, policy initiatives deployed by government centre on increasing the supply of funding within the economy. However, our research suggests that supply-side policy initiatives may fail to yield a satisfactory impact unless the 'demand' for external finance can be effectively stimulated. To date, initiatives to stimulate levels of demand have been largely absent."
Expert Opinion
This report reveals some very interesting findings in relation to funding demands and the perception of borrowing amongst high growth SMEs. <br/> <br/>“Fast-growth businesses are vital to future economic growth and although the Government has invested considerable time and money in improving the supply side, there is clearly more to be done in terms of stimulating demand for borrowing – particularly if it is holding back growth within the economy. <br/> <br/>“There are numerous sources of finance out there in the market and some such as ‘crowd-funding’ is proving to be more and more popular and effective. It is vital however that the full range of options are considered and specialist financial and legal advice is taken.” <br/>