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June 22, 2015, by Kelly Cookson

Sources of finance for SMEs

In May 2015 the Conservatives were elected into government with a manifesto that largely focused on improving the economy. The party reiterated its commitments to the range of funding options available to SMEs, including the Enterprise Finance Guarantee, the Business Finance Partnership and the National Loan Guarantee Scheme.

In the May 2015 Business Barometer survey our panel of UK SMEs and business advisers were asked about their experiences with sources of finance in the last 12 months in relation to their industry sector.

The responses from small business owners were as follows:

What sources of finance have you used in the last 12 months? 
Own money/cash 62.5%
Overdraft or credit cards 28.1%
Asset finance 14.1%
Business bank loan 15.6%
Money from family/friends 6.3%
Crowdfunding 3.1%
External investors (Business angels, venture capital etc) 0%
Not applicable 17.2%

Results show that a 62.5% majority of the sample used their own money as professional funds, with overdrafts and credit cards being the next most popular choice.

One commenter stressed that SME financing is an area in great need of improvement, stating: “Raising finance for SME clients is still very difficult; banks’ lending criteria are still far too restrictive in the SME sector – they don’t seem to want to lend in that area”. This perspective could attribute to the smaller percentage of panellists utilising bank loans.

However, panellist Bernard Goodchild disagreed, saying that recent years have seen great improvements: “The finance world is full of innovation with large numbers of new services (e.g. crowdfunding) and larger numbers of suppliers. This has been the easiest time to raise funds for a great many years.”

Another panellist explained that their preference for finances sources depended on how long-term the funding was: “Our bank were extremely helpful when we wanted to buy premises for the business but have had issues with short term funding of large orders. Our perception is that banks are extremely risk averse when it comes to small businesses, with the effect of constraining growth, particularly in international trade which is a priority growth area for the UK government.”

UK business advisors were asked about the finance sourcing of their clients:

Over the last 12 months, which of the following sources of finance has been utilised the most among the businesses that you advise? 
Own money/cash 62.3%
Overdraft or credit cards 26%
Asset finance 7.8%
Business bank loan 18.2%
Money from family/friends 16.9%
Crowdfunding 10.4%
External investors (Business angels, venture capital etc) 7.8%
Don’t know 11.7%

These results support the comments of our panel of small business owners that personal finance is the most popular source of funding, with bank loans coming in second.

One advisor noted that communication was a key decider for his clients as to which source to use: “All sources on the list have been used to a varying degree depending on the business’s reputation but ease of contact and the negotiation process remain the key issue.”

Another judged that many sources left much to be desired in this area: “The funding and other support landscape is very fragmented for SMEs and is not getting any clearer.”

The UK Business Barometer and UK Business Adviser Barometer surveys are run by the Haydn Green Institute for Innovation and Entrepreneurship. The results of the surveys are instantly processed and posted on their respective websites: and

Businesses and advisers wishing to contribute as panellists on the project can register via the websites.

Posted in Business BarometerBusiness financeGovernmentSMEs