The importance of private funding to scaling businesses
The SME sector is of vital importance to the UK economy, making up 99% of private sector businesses and 60% of private sector employment. 36% of these small firms reported growth last year, and therefore offer a huge number of opportunities to support innovation and the growth of the UK economy. Finding finance as a scale up can be a real challenge, but the potential for growth is huge.
The UK is a world leader in technology and sector disruption, and it is vitally important that entrepreneurs can gain access to growth finance to make their ideas a reality. The £2m-£10m finance mark is an awkward space to be in; too small for large-scale institutional backing, yet too large for crowd-based platforms. This limbo-land is all the harder to navigate when you consider banks have reduced lending to SMEs in recent years.
Schemes such as EIS – which had a record year in 2017/18 – offer a chance to invest in scaling businesses that have proved their concept, have an established revenue stream and a clear sight to profitability. It has previously been estimated that if the SME sector boosted by just 1%, it could generate 238,000 new jobs and an extra £38billion for the UK economy. The benefits of private funding are huge for both the businesses and investors and it is becoming more important as banks become more reticent to provide finance.
Private finance sources such as the Enterprise Investment Scheme has supported these innovators for 25 years and will be an essential part of their growth in future. Since 1993 nearly 30,000 businesses have received over £20billion worth of vital growth finance contributing to significant growth in the sector.
With around 60 percent of small businesses expecting to grow in the coming year, access to external finance will be an important enabler for those with expansion plans. To ensure long-term growth and economic prosperity, the UK needs a thriving SME sector – not least so that the successful SMEs of today grow and become the large companies of tomorrow.