Home Business News SME support could offer 3.6% economic growth boost

SME support could offer 3.6% economic growth boost

2nd Oct 24 9:25 am

Business finance comparison site, FundOnion, has today called on the Labour government to introduce three policies that will help small businesses reduce their reliance on working capital finance and instead push for growth that could result in a 3.6% boost for the UK economy.

FundOnion’s own data indicates that the proportion of small businesses looking for working capital finance has steadily increased over the past two years, edging up from 21% in 2022 to 23% in 2024.

This has been coupled with a stagnation in the proportion of businesses searching for growth capital finance, which has held steady at around 50% of the total finance obtained by businesses. This is a far greater proportion than the general small business population, however, for which around 58% of applications are for working capital as they struggle to make ends meet.

It is estimated that the UK is suffering from a £22 billion funding gap for SMEs, stifling growth and limiting opportunities for a group of businesses that are vital to the UK economy, employing over 13 million people in the UK and generating an estimated £2.4 trillion of turnover.

Data from FundOnion’s recent growth capital loans shows that the cash injection can result in revenue growth of up to 200%. An example of which being a dentistry business which borrowed £250,000 and has since increased revenue by 50% by using the funds to open another practice. It is estimated that if just 10% of the SMEs currently relying on working capital finance were able to instead focus on growth it could grow the UK economy by up to 3.6%, a huge potential boost at a time when the Labour government is committed to going from growth.

FundOnion is calling on the new government to provide support for SMEs in the upcoming October 30th budget, by implementing the following policies.

Crack down on late payments. It is estimated that late payments to SME cost the UK economy £2.5 billion a year, and while 2023 measures provided a start, much more needs to be done to tackle this issue. The current Labour manifesto pledges to tackle this but we need to see practical steps taken, not empty words. It is nigh-on impossible to manage cashflow when you can’t even rely on your customers paying you on time.

Give them a (tax) break. Labour has already pledged to reform the business rates system for small businesses but the Government could also look at potentially scaling back the priority that HMRC gets on funds, which can often lead to businesses being handed winding up orders. It’s important to keep tax revenues up, but we don’t want to lose viable businesses for the sake of one month’s tax take.

Fix the Designated Finance Platform. This was supposed to make it easier for businesses to access finance if rejected by one of the high street banks by providing referrals to other lenders. Unfortunately, fewer than a quarter of businesses rejected by banks for loans are referred and even fewer will be successful. This has to be improved, either by widening the pool of lenders or changing the current system. Access to finance is critical to many business’s success.

FundOnion CEO and Co-Founder James Robson, said, “Economic growth is rightly at the top of the Government’s agenda, but achieving that is going to take more than just talk. It will require a concerted effort across the breadth of the whole economy. We cannot afford to overlook SMEs. They play a hugely important role in providing jobs, innovation and growth, but have for too long been shunned in favour of a myopic focus on creating tech behemoths.

“Introducing these policies, designed to support SMEs could be worth billions to the UK economy – both in allowing existing businesses to flourish and grow, but also in encouraging those who may be considering a new venture. It may be a cliché, but everyone starts somewhere, so supporting the building blocks of the economy is truly a must have for this new Labour government.”

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