To encourage and enable smaller businesses to seek the finance best suited to their needs.
The challenge for smaller businesses, and why it matters
Improvements to small business finance markets have increased flows of finance and the diversity of products, providers and platforms available over the past five years.
Challenges remain, however, in terms of smaller businesses’ awareness of, and willingness to use, finance.
These challenges include:
- The share of smaller businesses using finance has continued to decline over time, with the majority preferring to forgo growth rather than borrow.
- An equity information gap persists, with the majority of businesses saying they don’t know anything about equity finance.
- Smaller businesses may not be aware of the full range of finance options available.
As a result, businesses may be missing out on finance that could help them facilitate the day-to-day running of operations, manage through times of uncertainty or fund longer-term expansion. Weak demand for finance is also particularly prevalent outside London and the South East, further reinforcing regional imbalances in access to finance.
If UK smaller companies are to maximise the business benefits that accessing external finance can bring, then barriers to awareness, knowledge and confidence need to be addressed.
Background and recent trends
The share of businesses using external finance has been on a downward trend since the financial crisis, falling from 44% in 2012 to 30% in Q2 2020. The brief pick-up in finance use in 2019 (peaking at 49% in Q2 2019) has not been sustained, although early signs from June 2020 indicate an increased proportion of smaller businesses using finance.
Economic uncertainty throughout 2019 led, in contrast, to an increase in use of short-term finance like overdrafts and credit cards, for working capital and cashflow purposes.
Reluctance to use finance has become more pronounced with only a minority of businesses willing to use finance to fund long-term growth. In the three months to March 2020 just 29% of SMEs were happy to use finance to grow and develop, down from 45% in 2015, reflecting systemic and structural problems on the demand-side that have persisted over time.
Attitudinal barriers to using finance persist, including a lack of awareness of the range of products and providers available and a persisting reluctance to give up control. Uncertainty over future economic conditions and a perceived difficulty in getting finance became more significant barriers to applying in 2019.
Over a third of businesses relied on their own knowledge and experience of finance when deciding what to apply for and where to apply. The most popular next step after identifying a need for finance was speaking to their main bank, and few businesses consider more than one provider. This could indicate that businesses are not benefitting from the choice of finance options, providers and platforms now available and possibly not getting the most competitive deal for their business.
- Region: London
- Location: London
- Programme: Start Up Loans
Jacqueline Hall decided to set up her own online mentoring company after being made redundant and then turned down from various job interviews.
Using a £2,500 loan from Start Up Loans, she set up a business offering development and career coaching, which has now grown to include a consortium with other female entrepreneurs that hosts workshops and encourages women into science, technology, engineering and maths (STEM) related careers.
prompted awareness of the Bank amongst businesses that might seek finance
Responding to the challenges, and 2019/20 snapshot
Through our Demand Development Unit (DDU) we deliver a range of digital and physical activities to address long-term demand challenges.
We group our interventions under four stages of a process aimed at encouraging and enabling demand for finance amongst UK smaller businesses:
- Awareness: building awareness of the Bank as a provider of trusted information on finance options
- Consideration: becoming the information provider of choice for UK smaller businesses
- Usage: ensuring the content we provide is easy to find and understand
- Outcome: seeing changes in how smaller businesses seek and use finance.
We have maintained progress across these stages. Prompted awareness of the Bank amongst businesses that might seek finance was at 24% at the end of March 2020 (an increase of 4 percentage points on last year), and we are increasingly being considered a core source of information, with our smaller business-facing finance information websites seeing visitors increase by a quarter compared to 2018/19. We have continued to refine our main digital information offerings, the Finance Hub and Business Finance Guide, which consistently see high site visitor recommendation ratings of around 80%. These sites aim to offer clear ‘customer journeys’, with best-in-class user experience and content provision on finance options.
In addition to the Finance Hub and Business Finance Guide, we provide further information to smaller businesses through our corporate and regional fund websites. These are complemented by the activities of our UK Network, a field-based team which is geographically dispersed around the country. The UK Network focuses on interactions with locally-based smaller business finance intermediaries, such as accountants, to build their access to finance ecosystems. Activities include:
- gathering place-specific market intelligence, which is then fed back to enhance the Bank’s digitally provided information, as well as informing thinking on future Bank initiatives
- providing relevant information locally, such as sharing best practice identified in other regions, and the latest information on finance options
- convening and linking access to finance players to drive local improvements.
In 2019/20, in its first full year of operation, the UK Network exceeded its activity targets, including attending over 500 regional and local events and making over 215 presentations.
2019/20 KPI performance
Our KPI for this objective is a combination of achieving targets associated with key aspects (awareness, consideration, usage and outcomes), as well as delivering strategic milestones. All are assessed using a ‘Red Amber Green’ status.
Out of the six KPI elements, for 2019/20 we achieved Green in four areas, and Amber in two. An overall outturn rating of ‘Amber’ shows progress in addressing demand challenges, but we need to improve performance in certain areas, specifically around usage and outcome.
Awareness measure*: 22%
Consideration measure†: 15,000
|Usage measure‡: 79%||Amber: 77.5%|
|Outcome measure§: 73%||Amber: 71.6%|
|Demand strategy to be presented
and approved by 31 March 2020
|Outcome measures designed and baselines |
established by 31 March 2020
* Prompted awareness of the Bank (SME Finance Monitor)
† Organic brand search – number of sessions (Google Analytics)
‡ Net Promoter System score – likelihood to recommend the Finance Hub
(Finance Hub Hotjar Survey)
§ Were you able to find the finance information you were looking for?
(Finance Hub Hotjar Survey)
Interim Covid-19 update on Bank activities
The market situation has radically changed, with significant increases in demand for finance from UK smaller businesses severely affected by drops in cashflow.
Businesses are urgently seeking out information on their finance options. Our channels have seen significant increases in activity, such as a rise in daily unique visits to the Bank’s website from under 1,000 to over 20,000 post-lockdown. This occurred alongside a significant increase in the Bank’s media profile, given its national role in delivering these schemes, with articles about the Bank’s work rising from 400-500 a month to over 7,000 in March 2020.
We have managed this unprecedented surge in demand for information by rapidly redesigning our websites to provide clear and detailed information on the Covid-19 response schemes for smaller businesses and their advisers, current accredited providers and potential future accredited providers.
Given Covid-19-related social distancing constraints, our UK Network was unable to continue its usual face-to-face activities.
We immediately re-assigned them to the Bank’s delivery partner accreditation team, enabling us to respond to greater operational demand by substantially increasing the pace of such accreditations across our Covid-19 response schemes.
We continue to review customer insights to iterate our demand strategy in light of the crisis, and have altered our approach from one of demand generation to demand responsiveness. This includes addressing where regional demand-side imbalances have increased significantly following the Covid-19 pandemic and ensuring our programmes are best placed to support the short- to medium-term priority of businesses to survive, stabilise and then grow.
Because we want smaller businesses to trust our organisation to inform, enable and reassure them through difficult times and beyond, we put in place a new awareness campaign in June 2020, as well as creating British Business Bank-branded information as part of the digital journey on our Finance Hub.
The Finance Hub offers practical guidance and detailed signposting to external business support, information on our own interventions and products, and any events and partner programmes created and managed by our UK Network team. Across these regional activation programmes we are addressing the needs of a much broader business population – all those eligible for loans as part of the Covid-19 response – as well as those looking for information and support through these very uncertain times.
Nevertheless, while demand for finance has significantly increased due to Covid-19, it remains too soon to tell what the long-term impact will be on the attitudinal barriers identified earlier. We will be monitoring this closely as the situation develops.