SMEs ARE more likely to choose non-traditional ways of accessing capital, including crowdfunding (32 percent) or offering investment opportunities to employees (30 percent), than they are to seek debt finance (26 percent), according to a survey by law firm Moore Barlow.
Firms are also likely to initiate a management buy-out (26 percent), or seek venture capital or private equity investment (28 percent).
All but one of the 250 C-suite executives and business owners canvassed said they intended to access some form of external investment in the next 12 months, with investing in innovation to develop new products and services (14 percent) and margin growth through improving pricing (12 percent) the two most-commonly cited strategies. Buy-and-build (nine percent) and UK expansion (six percent) were the least popular strategies.
Moore Barlow partner Jeremy Over says SMEs are still ambitious — despite the negative impact of the pandemic. “The shift away from traditional forms of investment is for a number of reasons,” he says. “Firms want to be agile and are concerned about the bureaucracy involved with borrowing from the bank, or fear a tougher negotiation and loss of independence when taking venture capital or private equity backing.
“While crowdfunding does offer an antidote to some of these concerns, I would urge business leaders to take a step back, consult their advisors, and think about whether this is the right option for them.
“The established mechanisms for accessing funding have stood the test of time for a reason and, even if they are sometimes harder to put in place, normally offer a better-structured and more resilient long-term option.”
Less than a third of the business leaders (31 percent) planned to invest in their business across the next 12 months order to drive growth. Of those, investment in people to upskill the workforce (32 percent), improving employee benefits (29 percent), driving graduate recruitment (28 percent) and rethinking (29 percent) or expanding (29 percent) office space were the clear spending priorities.
“The real positive I take from our research is that businesses are looking to put their money where it matters,” said Over, “their offering to customers and their people.
“As they tackle the strong economic headwinds lying ahead, it’s vital for SMEs to have the right legal and financial structures in place to protect these assets.”