A new report commissioned by GRENKE UK, the leasing solution partner for small and medium-sized enterprises, designed to understand the current state of SME financing in the UK, has found that over half the UK’s SMEs are relying on credit cards to support their businesses day-to-day.
These findings highlight how credit cards are increasingly becoming the go-to quick fix solution despite carrying drawbacks and being a less efficient form of financing for SMEs.
The survey of 600 business owners across the UK found that after credit cards, business overdrafts and bank loans are jointly the second most popular form of financing amongst SMEs.
Two fifths (39 per cent) of respondents use these options. Meanwhile, a third (33 per cent) reported that government loans are their primary form of financing, reflecting the high levels of government financial support provided to businesses following the onset of the Covid-19 pandemic, and more recently the energy crisis.
Across the eight sectors examined, the Lease of Life report found that SMEs in the retail sector are the most likely to rely on credit cards with nearly 60 per cent sticking their costs on plastic, despite the limited nature of this form of financing as well as the increased risk of exposure to higher interest rates. At a regional level, Scotland sees the highest use of credit cards with nearly two thirds (60 per cent) of Scottish SMEs using this as their primary form of financing.
Looking more closely at alternative forms of finance available to SMEs, whilst two-thirds (66 per cent) of respondents have considered using asset finance, one in 10 (10 per cent) feel they don’t have access to sufficient knowledge or information to choose this option.
David Horton, Managing Director of Sales, GRENKE UK, said: “While credit cards may be easy to secure, it is surprising how many SMEs have become reliant on this type of finance to fund their business.
“Findings from our Lease of Life report and conversations with the Equipment Supplier community have shown that many of the UK’s SMEs still have limited knowledge of the various forms of financing available to them.
“As high interest rates begin to hit on demand, employment, and business confidence across the economy, it is critical SMEs need to be far more aware on the financial options available to them and which will give them their opportunities for growth.”
The report also found there is a significant opportunity for asset finance to play a bigger role in SME growth opportunities. Increased use of asset finance amongst eligible UK SMEs across eight major industries, has the potential to contribute £7.6bn annually to national GDP and up to 114,800 jobs by 2025.
At an industry-wide level, nearly a third of manufacturing SMEs are currently using asset finance, contributing £216m to the UK’s GVA, the highest contribution of any single sector. GVA or Gross Value Added is an economic productivity metric that can be used to measure the contribution to GDP (Gross Domestic Product) made by an individual producer, industry or sector. It measures their contribution to an economy, sector or region. A third of manufacturing SMEs also say they expect their use of asset finance to grow over the next few years.
Our research found that Yorkshire and the Humber is the most successful region in the UK using asset finance to support employment, with a quarter (25 per cent) of all UK SME jobs attributed to this type of finance found in the region.
Nearly half (46 per cent) say they are considering expanding their use of asset finance over the next few years as it has successfully contributed to their business productivity and profitability. SMEs from Yorkshire and Humber the region also report this type of finance provides a higher contribution to business productivity and profitability compared to the national average.
David Horton, Managing Director of Sales, GRENKE UK, added: “This landmark report has showcased not only asset finance’s current contribution to SMEs and the wider economy, but also the potential opportunity for the growth that this form of finance can offer. While higher interest rates are taking their toll on the profitability and economic performance of SMEs across the UK, the current macroeconomic climate provides an opportune moment for SMEs to explore other forms of support and unlock potential for future growth.”