Small and Medium-sized Enterprises (SMEs) are the backbone of many economies, driving innovation, employment, and economic growth.

However, despite their crucial role, a significant number of SMEs face considerable hurdles when seeking finance from mainstream lenders.

According to recent data, a fifth of SMEs are unable to expand their business due to finance rejection.

This issue not only stymies the growth of these businesses but also has wider implications for economic development.

In this article, we will explore the reasons behind this trend, examine relevant statistics, and discuss how commercial brokers can provide vital alternative funding solutions.

The Challenges SMEs Face with Mainstream Lenders

Mainstream lenders, including traditional banks and financial institutions, often have stringent lending criteria that many SMEs struggle to meet.

These criteria typically include a robust credit history, substantial security, and detailed financial records, which can be challenging for newer or smaller businesses to provide.

The result is a high rejection rate for SME loan applications, leaving many businesses without the necessary capital to grow and innovate.

Reasons for Finance Rejection

  1. Poor Credit History: Many SMEs have a limited or poor credit history, which significantly reduces their chances of securing finance from mainstream lenders.
  2. Insufficient Security: Traditional lenders usually require significant security to secure a loan. SMEs, especially those in the early stages of growth, often lack sufficient assets to meet these requirements.
  3. Inadequate Financial Documentation: SMEs might not have the extensive financial records that banks demand. This lack of documentation can lead to automatic rejection.
  4. Risk Aversion by Lenders: Mainstream lenders tend to be risk-averse, preferring to lend to established businesses with a proven track record, which excludes many SMEs.

The Impact of Finance Rejection on SMEs

The inability to secure financing has far-reaching implications for SMEs.

Without access to necessary funds, these businesses face significant challenges in expanding their operations, investing in new technologies, hiring additional staff, and competing in the market.

This stagnation not only affects the individual businesses but also has broader economic consequences, such as reduced job creation and slower economic growth.

Statistical Overview

  • Finance Rejection Rates: According to a survey by the British Business Bank, approximately 21% of SMEs seeking external finance were rejected by mainstream lenders.
  • Growth Inhibition: The same survey found that finance rejection led to growth inhibition in about 60% of the affected SMEs.
  • Alternative Funding Uptake: Around 43% of SMEs turned to alternative finance options after being rejected by mainstream lenders, highlighting the growing importance of these sources.

The Role of Commercial Brokers in Sourcing Alternative Funding

Commercial brokers play a critical role in bridging the gap between SMEs and the financing they need.

By leveraging their expertise and extensive networks, commercial brokers can help SMEs navigate the complex landscape of alternative funding options. Here are some ways commercial brokers can assist:

1. Access to Diverse Funding Sources

Commercial brokers have access to a wide range of funding sources beyond traditional banks, including alternative lenders. This diversity increases the likelihood of securing finance tailored to the specific needs of SMEs.

2. Expert Guidance

Brokers provide expert information on the most suitable funding options based on the unique circumstances of each SME. This personalised guidance helps businesses make informed decisions and increases their chances of obtaining finance.

3. Streamlined Application Process

The application process for alternative funding can be complex and time-consuming. Commercial brokers assist in streamlining this process, ensuring that all necessary documentation is prepared and submitted correctly, thereby improving the chances of approval.

4. Negotiation Power

With their industry knowledge and connections, commercial brokers can source from a larger funding pool, at times sourcing more favourable financing conditions.

Why use The Funding Store?

The rejection of finance by mainstream lenders is a significant barrier to the growth and success of many SMEs.

However, alternative funding options, facilitated by experienced commercial brokers, like The Funding Store, can offer a viable solution to this problem.

By leveraging our expertise, networks, and negotiation skills, we can help SMEs secure the necessary capital to grow and thrive.

SMEs struggling with finance rejection should consider partnering with us to explore the diverse range of alternative funding options available and unlock their full potential.

If your SME has faced challenges in securing finance from traditional lenders, don’t let it hinder your growth.

Contact us today to learn how we can help you access the funding you need to expand your business and achieve your goals.

If you’re a small or medium-sized business looking for funding, then why not contact The Funding Store today.

We do not charge broker fees, and with access to one of the most extensive and competitive lending panels in the UK, can bring you fast, flexible solutions that meet your finance needs.

The Funding Store can help guide you through the funding process and find the best funding options that fit your specific needs.

Whether you’re looking to start a new business, expand an existing one, or cover unexpected expenses, The Funding Store can help you achieve your financial goals.

So don’t hesitate, contact us today on 01908 880420, to take the first step towards securing the funding you need to grow and succeed.

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This article has been produced by for general interest. No responsibility for loss occasioned to any person acting or refraining from action as a result of the information contained in this article is accepted by The Funding Store Ltd. In all cases appropriate professional legal and financial advice should be sought before making a decision.

Published On: 24th June 2024|