What is confidence? A gut feeling you’re getting things right. Having a strong belief you know what you’re doing and where you’re headed next. In general, a sense that life is going your way or that you can tackle whatever it throws at you. Conversely, when you’ve had a few knocks, it can be hard to summon up the energy and determination to push yourself beyond what is safe and familiar.
It’s no different for businesses than for the average man or woman on the street. And the good news is that after several years of relative trepidation, the UK’s SME community is back on buoyant form, growing at a healthy rate and feeling hopeful about the future. A recent report from the Enterprise Research Centre found British SMEs are growing at the fastest rate since the beginning of the economic downturn. They’ve measured growth in terms of job creation, start-ups surviving past the three-year mark, plus the proportion of those businesses that reach a turnover of £1 million and existing firms making between £1 million and £2 million that increase turnover to £3 million. These are material signs of success and such positive developments are creating levels of business confidence near the post-recession high, according to the latest Lloyds Bank Business in Britain survey. Good feelings are being fuelled by increasingly healthy sales, incoming orders and expected exports. More than a third of smaller companies intend to grow their headcount over the next six months and, importantly, about one in three also plans to increase investment spending.
That’s where we and our peers in alternative finance come in. Demand from small firms for lending increased significantly in the second quarter of this year Bank of England data shows, no doubt as a result of these can-do feelings that currently abound in the small business community. The Bank’s experts expect SMEs to ask for even more borrowing in the third quarter of 2015. Bank lending has increased to small and medium enterprises since the beginning of the year, the British Bankers’ Association has found – and not before time – but too many firms still fall foul of the banks’ rigid loan approval criteria. We hear of sound business concerns being deemed inadequate by their bank because they operate in too risky a sector, they’re punished for lacking in assets or penalised for trading in the wrong way. Which is precisely why more businesses are turning to alternative finance.
Of course, we take a different approach, look at the overall health of a company and we don’t ask for security against our loans. It’s one of the ways we set ourselves apart from our more traditional peers and I’ve talked before about how the banks’ miserly attitude towards SMEs is, in fact, a gift for alternative finance providers. Their loss is our gain. And there’s evidence that having discovered ways of raising capital away from the high street banks, small business owners don’t want to go back to the old ways of borrowing, always going to the bank manager first, cap in hand. As an industry, we must build on this important progress, continuing to play to our strengths, those that small firms say they appreciate – the greater flexibility we offer in comparison with traditional finance institutions, as well as the simple fact we’re genuinely keen to work with smaller companies.
I’m truly heartened that British businesses are finally finding reason for hope, optimism and general good cheer. That’s not to say that SMEs don’t still face hurdles to business growth, not least of which is the issue of hiring talented people with the right experience and skills. The Lloyds study revealed business owners believe recruiting skilled workers is the hardest it’s been in seven years. Alternative finance providers can’t solve the skills gap and neither can we find the perfect candidates to fill small businesses’ vacancies. But we are making a big difference to how companies can raise funds for investment and we’re giving their feelings of confidence foundations in reality by helping them finance their expansion plans.
Some of this confidence is created by economic conditions, of course – a period of historically low interest rates have had a part to play in maximising the opportunities of a buoyant UK economy for one thing. But sentiment has a place here, too. Some business owners feel brighter because they can see their order books filling up, while others are driven by a less tangible quality – hope, ambition, a belief in what can be achieved with a little determination. It is up to us as an industry to tap into this positive attitude and help these optimists achieve their goals. Success breeds success, they say, and confidence is certainly infectious. Our role is to feed and enable this virtuous circle of optimism, effort and reward. The outcome will be great for both us and the businesses we serve.