Sunday, December 22, 2024

How to scale your small business in the UK during tough economic times

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A thorny combination of rising inflation, supply chain disruptions, and financial tightening are causing headaches for businesses across the UK, with small and medium-sized enterprises (SMEs) particularly feeling the strain. And let’s not forget the upcoming budget, which could lead to further pain.

It’s no wonder then that business owners are seeking out the best growth strategies amid these stern economic headwinds. In a recent interview on Yahoo Finance Future Focus, Simply Asset Finance chief operating officer Ylva Oertengren shared her insights on how SMEs can navigate these challenges and achieve growth in the current environment.

SMEs are the backbone of the UK economy, accounting for 99% of all businesses and employing over 60% of the workforce. Oertengren emphasised their vital role, explaining that they contribute significantly to private sector turnover. “If we could just make it a little bit easier for them, what would that mean for growth?” she asked, underlining the potential economic uplift that could come from empowering small businesses.

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Despite this importance, SMEs have struggled with access to finance, which has constrained their ability to grow. Oertengren highlighted that three-quarters of bank lending goes to larger corporates, leaving SMEs underserved. She pointed to the gap between ambition and financing, noting, “The fact that we are not seeing growth come through from this part of the economy is not down to a lack of ambition, but too often, a lack of finance.”

Oertengren outlined a clear path for businesses aiming to grow: improving productivity. “To be able to grow, you need to increase profit. To increase profit, you need to produce more with the current cost base,” she said. However, achieving this is no easy task, especially with ongoing labor shortages and rising costs.

For many SMEs, the answer lies in investment — whether in new machinery, technology, or skills — to unlock growth potential. However, accessing the necessary capital for such investments can be challenging. According to Oertengren, UK business investment remains below the G7 average, leading to lower productivity compared to other advanced economies. She stressed that addressing this issue is essential for enabling SMEs to grow.

One of the biggest challenges facing SMEs is finding financing that meets their specific needs. Oertengren noted that SMEs are not a homogenous group; they vary in size, structure, and growth stage, making it difficult for traditional lenders to cater to all their needs. From sole traders to businesses with hundreds of employees, SMEs require flexible and tailored financial products.

Oertengren expressed concern over the increasing reliance on overdrafts and credit cards, which many SMEs use to finance their operations. “You clearly can’t run a growth strategy on an overdraft facility,” she stressed, emphasising the importance of finding the right type of financing to fuel long-term growth.

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When asked how SMEs can break free from this reliance on overdrafts or credit cards and take steps toward securing more sustainable options, Oertengren advised business owners to thoroughly understand their own financial needs and growth cycles, and to seek out lenders who truly understand their business. “A credit score will not do a customer justice in this segment,” she said, stressing the importance of working with a lender that looks beyond traditional metrics to assess the potential of a business.

One of the key takeaways from Oertengren’s interview was the importance of building partnerships with lenders who understand the unique challenges facing SMEs. She highlighted the need for lenders to adopt advanced technology and data analytics to assess businesses in a more nuanced and accurate way.

To overcome the barriers SMEs face, Oertengren recommended seeking out specialist lenders with a deep understanding of the sector and the ability to provide tailored financial solutions. These lenders can offer more than just capital; they can provide the strategic insights and support that SMEs need to thrive in difficult times.

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She also touched on the growing presence of alternative lenders who have the right approach but lack the scale of larger financial institutions. These newer entrants, with their more flexible and innovative products, present opportunities for SMEs to access the financing they need to grow.

Oertengren said that in the current environment, many small business owners are reluctant to pursue loans, fearing rejection or bureaucratic delays. This hesitation can lead them to rely on expensive, short-term options like credit cards, which are not suited to long-term growth.

When asked about the next steps for business owners who feel trapped in this cycle, Ortengren emphasised the importance of understanding one’s business and growth ambitions. She advised business owners to carefully evaluate their financing needs and seek out lenders who share their passion for growth. “Find a lender that has the ability to see beyond that credit score,” she said, encouraging SMEs to work with financial institutions that can provide financing based on the business’s potential rather than rigid credit criteria.

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Oertengren then highlighted the opportunities for collaboration between large financial institutions and smaller, more agile lenders. By leveraging technology and data, both types of lenders can better serve SMEs, enabling them to access the capital they need to grow. She stressed that this partnership model could be key to unlocking growth for SMEs, driving innovation, and strengthening the UK economy as a whole.

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