By Adam Pescod on Small Business UK – Advice and Ideas for UK Small Businesses and SMEs
Debt finance is one of the most popular funding options available to small firms in the UK. Unlike equity finance, which entails giving away a share of your business in return for investment, debt finance involves borrowing money to either start or grow a company.
Not too long ago, the most common forms of debt finance were bank loans, along with loans from friends and family. However, they have been joined by a raft of new debt finance options, the majority of which emerged in the wake of the recession. From challenger banks and online lenders to peer-to-peer (P2P) and invoice finance, these new players have delivered greater choice to businesses and helped bring the debt finance industry into the 21st century.
The benefits of debt finance
One of the main advantages of debt finance is that it allows a business owner to stay in control of their company. While equity finance tends to offer higher amounts of capital, a founder will have to sacrifice a portion of their ownership – or equity – in exchange for the funding. With debt finance, the only cost to a
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Covid debt drowning small businesses to the tune of £104bn
by Timothy Adler • • 0 Comments
Originally written by Timothy Adler on Small Business
Bank lending to small businesses hit over £100bn last year as SMEs scrambled for Government-backed Covid debt facilities.
Overdraft applications flatlined, despite gross bank lending to SMEs rising by 82 per cent to £104bn.
Around 1.5m Bounce Back Loan and Coronavirus Business Interruption Loan Scheme Covid debt facilities had been approved by the end of 2020.
And nearly one third of businesses accessed grant funding last year, compared to just 2 per cent in 2019.
The pandemic has hit the smallest firms hardest, with 49 per cent of sole trader and self-employed businesses reporting a fall in turnover compared to 38 per cent of businesses with 50-249 employees.
Worryingly, despite the flood of cheap Government lending, one third of small businesses surveyed in the latest British Business Bank report expect to shrink.
Only one in five (21 per cent) were expecting to grow, compared with 28 per cent the previous year.
SMEs in business services (25 per cent) and production (23 per cent) sectors were most optimistic about their prospects for growth over the next year, with businesses in construction and other services sectors least optimistic (both 17 per cent).
Encouragingly, small businesses have amassed a war chest due to the