The UK has a thriving entrepreneurial culture; more than 1,100 new businesses start each day in the UK, according to government statistics.
However, too few UK entrepreneurs turn their start-up into a mid-sized business.
We need to challenge this short-sighted culture and instead encourage more UK entrepreneurs to grow their businesses over the long-term, says Dominic Buch, Co-Founder and Managing Partner of Caple.
What’s the issue?
While the UK is a great place to start a business, its entrepreneurs may not be thinking about building a business for the long term.
The start-up environment is heavily disposed to favour starting and selling a business.
Just look at funding and access to capital.
Smaller businesses are able to access both bank funding and finance from new entrants such as peer-to-peer platforms. Larger businesses, or those with an asset base, are well served by banks and specialist debt funds.
The real problem is for more sophisticated SMEs and owner-managed businesses, without assets to use as security.
The middle missing struggle because while banks can fund an amount that reflects the assets in a business, they can’t help if a business has no further assets to borrow against.
Without access to secured lending, until now business owners have had to consider selling a stake in their business to raise funds or agree to personal guarantees.
What’s the impact?
For these slightly larger and more complex SMEs, the lack of genuinely unsecured lending is therefore a significant barrier to growth.
This lack of lending contributes to the broader issue of why the UK fails to generate more mid-sized firms and new global behemoths.
Without access to suitable finance, the best outlook for a small but growing business might be to sell to a larger, often foreign, counterpart.
So, what’s the solution?
First, financing terms of traditional bank or peer-to-peer loans are only a few years at most. But short-term loans encourage short-term thinking.
Second, we know that the slightly larger SMEs need unsecured credit of between £500,000 and £5m. But it is exactly this amount that is usually too big for peer-to-peer platforms but too small for banks and debt funds.
Caple is the first in the UK to offer long-term unsecured lending between £500,000 and £5m based on the future cash flows of the SME. We do not require collateral or personal guarantees as security.
For small but growing businesses wanted to seek such lending, they should seek professional help from an accountant or business advisor. These experts play a central role in helping these firms access the right funding.
While the UK has a thriving start-up scene, we need to do more to encourage business growth over the long-term. That means providing the funding to match.