Findings in the latest Scottish Pacific SME Growth Index paint an interesting picture of the SME business landscape, with business owners increasingly turning to non-bank finance to fund growth.

SME owners are optimistic about revenue growth and enjoyed improved cash flow in 2017, although nine out of 10 still admit to cash flow problems that impacted on their revenue.

Of those respondents using non-bank lending options to fund growth in 2017, by far the most popular option was debtor finance (used by 77%), followed by merchant cash advances (23%), P2P lending (10%), crowd funding (9%) and other online lending (5%).

We outline key findings below, but first: What do our findings mean for introducers?

  • Three quarters of SMEs are on the move, either growing (50%) or declining (24%). This is significant for introducers: how are your clients planning to fund growth? How are they planning to get through tough times?
  • You are ideally placed to make clients aware of debtor finance, the type of funding suited to environments of strong growth or decline.
  • In the “middle ground” of static growth, a business owner might be able to subsist by using personal credit cards or their own funds. But our Index suggests now is a good climate for introducers to be contacting clients to discuss working capital solutions.
  • With an increasing trend towards non-bank lending, SMEs’ confidence is up and debtor finance solutions are a great alternative to grow the business with an ongoing line of credit


Key results

Cash flow – While two-thirds of SMEs report improved cash flow, nine out of 10 SMEs say they still had cash flow issues in 2017 and nine out of 10 say these issues impacted on revenue. On average, SME respondents said that better cash flow would have increased their 2017 revenue by 5-10%, with one in 10 growth SMEs reporting it would have given them as much as a 50-100% revenue increase! Almost a quarter of businesses could have grown between 10-25% with better cash flow – this is a significant growth rate and suggests to introducers that some of their clients may not be using the right funding tool.

Improving cash flow is a great way to unlock revenue growth – and to deepen your relationship with clients. Ask your SME clients about their cash flow.

Funding growth – For SMEs with plans to invest in expansion over the next 6 months, almost as many will turn to a non-bank as to a bank. 24% say they will fund growth by borrowing from their main relationship bank – continuing a downward trend, and well short of the high of 38% who nominated this option to fund growth in the first round of the Index in September 2014. More than one in five SMEs (22%) plan to use alternatives to their main bank to fund upcoming growth, while the majority still dip into their own finances. Growth SMEs were five times more likely to use non-bank lending options than declining growth SMEs. This is a great opportunity to speak to your clients about the growth prospects of their business and what opportunities they may be looking to fund.

Future of non-bank lending – The growth potential for the non-bank lending sector is significant, given that 48% of SMEs didn’t use non-bank lending in 2017 but are considering it for 2018. Looking at it from another perspective, 43.5% reported that they haven’t used non-bank lending options. Introducers are well placed to broaden their relationship with clients by helping educate them about the funding tools available.

Revenue – 50% of SMEs are forecasting positive growth revenue – the most since March 2016, but well short of the high of 62% in September 2014. On average, the revenue increase flagged for the first half of 2018 is 4.3%.

Growth drivers – The key drivers behind business success, as nominated by SMEs, are core customers and a strong team. However, if another two responses are combined (“just follow our nose” and “good luck/good timing”) this is the growth driver strategy two-thirds of SMEs say they use!

Growth barriers – The most troublesome issues for growth SMEs were high or multiple taxes, government red tape, conditions and availability of credit and cash flow. One in five SMEs said they were unable to take on new work because of cash flow restrictions.

The credit trap – Two-thirds of SME owners admit to dipping into their own personal finances (such as personal credit cards) to deal with cash flow issues. Even more than reported using cash flow forecasting as a strategy. Half offer early payment discounts and one in 10 reduce overall sales to ease cash flow pressures. Clearly, some strategies are smarter than others for sustainable business growth.

The results of the Index indicate that many SMEs realise credible business funding alternatives are already available.

Businesses implementing appropriate working capital solutions to get on top of cash flow barriers will be well placed to realise their growth ambitions.

For a full copy of our SME Growth Index Report, download your copy here.