Intelligence

Talking SME Finance: Vested UK Hosts Second Breakfast & Brainfood Event

Elspeth Rothwell

CEO, UK

Last Friday, Vested UK gathered leaders in financial services communications and marketing, for another Breakfast & Brainfood event. Our first food for thought in this series focused on consumer optimism, during which Paul Flatters, from futures agency Trajectory, talked us through his insights on topics such as the impact of globalisation, fake news and generational divide.

This time, SME Finance was the talk of the table. The brains that accompanied the nutritious food belonged to Shiona Davies, author of the BVA BDRC SME Finance Monitor, who talked us through the findings of the upcoming report. Not only is this a fascinating topic given that SMEs make up 99% of all businesses and that we’ve worked with many SME finance providers over the years, but being a high-growth SME ourselves this also sparks personal interest.

The biggest question on our communicators’ lips was: how do you communicate to businesses the importance of using external finance for growth, in a society that has been moulded to be embarrassed about money and cautious of debt? How do we change perceptions and behaviours to create greater demand for finance that will bolster economic growth and prosperity.

The hard boiled facts

After the green smoothies and chia seeds kick-started our metabolisms, Shiona began the discussion by hitting us with some hard stats:

  • A stable 8 in 10 SMEs have been profitable since 2015
  • However, since 2012, fewer SMEs of all sizes have innovated, whether launching new products and services or improving business processes
  • Only 34% of SMEs use external finance, most (23%) use only core forms of finance (loans, overdrafts and credit cards)
  • The problem is not that banks aren’t lending – in fact, this statement is factually incorrect, with 85% of applications resulting in a facility. The issue is that 83% of SMEs are happy non seekers with 79% basing their growth plans on what they can afford and 73% who would rather grow slowly instead of using finance to grow more quickly
  • Half of SMEs meet the definition of a Permanent non-borrower, neither using finance nor with any plans to do so while 3 in 10 are using trade credit or credit balances to reduce their need for finance

Shiona’s findings left everyone with the challenge “but what about the headlines that have taught us banks simply aren’t lending to businesses?” Also, if businesses are profitable but are not innovating, what does this mean for the future of UK businesses and the wider economy? The debate had been sparked and the juicy conversation opened up to the room.

Communicating the need for business finance

Discussions began about this lack of perceived demand. Just 2% of businesses declared they had an event where they needed finance in the last six months – but we questioned whether business leaders are simply skeptical about borrowing, or lacking the awareness of the value and opportunity it can add. The answer to this dilemma, we agreed, would structure how we construct SME finance comms, in that our approaches could focus either on raising awareness for the need or tackling the misconception.

It was suggested that there is a mixture of both at play: on the one hand, business owners are also consumers, so an owner’s personal attitude to debt is often a factor. On the other hand, even among the biggest businesses, only around three quarters have a finance specialist; external finance may therefore be used as a last resort rather than as a means for growth. Large businesses are more likely to have accountants and advisers – though they are usually present during emergencies and key finance moments rather than to encourage growth – whereas businesses with 1-10 employees are more likely to live month to month with no financial plan in place.

So the solution, we concurred, was finding a way to both increase awareness and tackle the misconception of business finance, which can be achieved through emphasising the ends rather than the means. Business leaders care more about the extra equipment or new store they can purchase, than they do about the means of getting there, so communication strategies should cater to this end goal. At least, that is, until we as a society become better at talking about our finances and the role external finance can play.

Future food for thought

“Let’s keep calm and carry on for a bit” said Shiona, after the discussion led to how SMEs’ attitudes had changed after the referendum. From my perspective, and everyone else’s it seems, a big aspect of the taboo surrounding business finance is the lack of transparency and knowledge of the various products. When business leaders are focusing on building and maintaining a high growth company, it can be daunting to venture into the realm of financial options which add another layer of responsibility and decision making.

As a country, it turns out, we’ve traditionally been very good at starting businesses but not so good at getting them to 10+ employees – could the lack of finance also be a factor in this?

This concluded the morning nicely with a look to the future of UK businesses. Will people change their attitudes towards finance or will they accept that they have to move slower? If the latter, what will be the impact on innovation and global expansion? What does it mean for broader business? Can we, as communicators, help businesses to understand the need for external finance, as a tool for growth rather than as a last resort? Now there is a lot of nutritious food for deep thought.

Keep your eyes peeled for our next Breakfast & Brainfood event – it’s going to be cereal-sly great!

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