Small Businesses Leverage Cashflow to Fund Growth

Majority of small and medium enterprises find it too “time-consuming and expensive” to apply for bank finance

Small Businesses Leverage Cashflow to Fund Growth

More than half (59%) of Britain’s small firms are using cashflow to fund growth as many believe it’s too “expensive and time-consuming” to seek funding traditional lenders; the national Working Capital Outlook Survey by C2FO has reported.

60% of small businesses said it was too expensive to borrow from banks and the report found that only 30% of UK companies are able to borrow money for an APR of under 6% – with firms in the financial and insurance sector borrowing at the highest rate of approximately 7.2%.

The survey featured over 400 small and medium businesses and quizzed them on a range of financial issues, including how they preferred to improve working capital and deal with late payments.

While many business owners said they were trying to finance development using operational cash, 61% said they are becoming increasingly concerned over their ability to finance long-term growth over short-term growth (39%). Furthermore, 40% of business owners said there have been points over the last year when they have needed more working capital than they had.

When asked what they would do with more funding, business owners reported that they would invest in growth (46%), purchase more inventory (23%) and meet existing obligations (20%).

In regards to small businesses and late payments, many firms reported an ongoing issue with large business customers refusing to pay on time – over 10% of small businesses confirmed that customers regularly pay late.

Despite the highly publicised late payment problem in Britain, 39% of business owners said they still don’t like to directly ask customers for early payment. Yet when asked what type of payment options companies considered, 77% said they would prefer to name their rate for early payment.

Colin Sharp, SVP EMEA at C2FO, commented on the report:

“Small businesses in the UK are evidently paying careful attention to their prospective customers’ payment terms, given high borrowing costs and an increasing reliance on efficient cash flow from their customers to fund operations and growth.

“Over a third of UK small businesses state that it’s too expensive to borrow, with a majority financing themselves with cashflow from operations.”

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