As a leader in your business, all too often helping others accomplish their duties dominates our day, which leaves the toughest tasks - establishing a supportive culture, effective processes and a pipeline for future growth - for the few hours left at the end of the day, or worse, at the end of the week. Funding your business and safeguarding your cashflow is one of those important tasks that cannot continually be pushed off to the next day, week or month. Many once profitable businesses have failed because they did not appropriately safeguard their cash flow.
Debt can be a powerful tool and adds leverage to your business. Used well, it creates above average growth but mismanaged, it will be detrimental to your business. It must be planned for but most businesses spend, on average, only one-hour sourcing finance and allow only seven days to plug a cash flow gap. Not allowing adequate time to source funding options and get your business ready to apply for finance can result in a rejection or less-than-ideal loan terms, both of which can significantly stifle your growth.
Anecdotal evidence suggests that most SMEs only approach the largest banks – who account for over 80% of SME main banking relationships – when seeking finance. Approximately 50% of first-time SME borrowers are rejected by those banks because they don’t meet their risk profiles, and 37% will reportedly give up their search for finance and cancel their spending plans altogether.
An estimated 71% of businesses who seek funding only approach one lender and more than half will only talk to their main bank, according to the Department of Business Innovation and Skills. If they receive a rejection, it is often viewed as a dead end, usually because business owners are unaware of the alternative sources of finance available to them.
The lack of SME knowledge about challenger banks and alternative finance providers, combined with these lenders' limited ability to get the word out to SMEs seeking funding, is a current market limitation that is restricting economic growth. Third-party platforms, like Capitalise, that are accessible to both SMEs and lenders are one effective way to increase the flow of information and bring the two parties together.
So, what's the moral of the story? SMEs need to devote ample time to finance planning - identifying alternative finance options and exploring which one(s) are best suited to their business needs. If not, the old adage - failing to plan is planning to fail - can unfortunately ring true when it comes to managing cash flow.