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Small businesses run out of cash before they run out of potential

MINDBODY releases insight report to support fitness and leisure businesses in the UK

By Rob Straathof, CEO of Liberis

Small businesses are the engine of the UK economy. They are a powerhouse of unique and varied organisations, spanning family run bakeries, friendly pubs, restaurants, local florists, and much more. Together they make up 99% of all businesses in the country. They are an important driver of our high employment rate, accounting for three-fifths of UK employment. Therefore, it is in the interests of the country’s wider economic health, post-Brexit that these businesses survive and thrive.

But sadly, the reality is that the small business engine is stuttering. One in four small businesses fail within five years. This is, mostly, because they run out of cash.

Traditional finance institutions are failing small businesses

Many small businesses need an influx of cash to deliver on ideas, realise ambitions and fulfil their potential. They want to expand into new markets, overhaul their premises or develop new products and services. Others need finance to plug gaps in their cash flow, which can be tough to manage. In fact, recent research showed small businesses are taking out loans to manage their cashflow instead of investing in their operations, after late payments almost doubled to £23 billion last year.  It’s a real threat as if a small business gets paid later than expected or if several creditors demand payment at the same, time it could be game over.

In either situation, external financing is often the answer. However, access to finance is a headache for small businesses. Back in the day, people knew their bank manager personally. Small businesses understood precisely where to go to get the loan they needed and knew exactly what they had to do to get it. But today banks only offer these personalised services to a small group of high-value customers.

Small business finance from traditional finance institutions, in contrast, is too slow, too inflexible and excludes too many good companies. In fact, if you’re a small business owner, there’s currently a very good chance that you’ll get denied finance from a bank, as they tighten their lending. Even worse, British Business Bank stated that around 38% of small businesses give up or cancel plans if the first finance provider that they contact rejects them. This results in lost opportunities, less hiring and, sometimes, the need for an organisation to shut up shop.

An alternative perspective

This is where alternative finance platforms come in. Fintechs have emerged over recent years to help finance small businesses that can’t find capital at the bank. They are often driven by a mandate to change the status quo, making it easy for these businesses to access the funding they need to run their organisations, drive growth and create jobs.

What’s particularly interesting is that many fintech funding models have been developed with the specific needs of small businesses in mind, with speed, flexibility and simplicity at the core of the offering. However, the key to all of these differentiators is working with the rhythm of a small business and companies such as Liberis have a particularly unique offering in this respect, whereby small businesses only pay when their customers pay them. This makes it ideal for small businesses built around seasonal peaks in demand as they don’t have to worry about making large payments during their leaner months.  For a pub that sees its profits hit during the dry Jan period, this can be the difference between closure and surviving until the more lucrative summer ‘pub garden’ season, when they can afford to pay more back, as profits increase.

However, it is not fintechs alone that can lend a helping hand via accessible funding. Any organisation that counts small businesses amongst its customers can put solutions in place to help these companies thrive. By working with a fintech that offers white-labelled finance solutions, businesses from payment processing companies to food delivery organisations can deliver tailored funding to small business customers, providing the added value that’s so important for small business customers. This offers them the opportunity to play a role in solving the small business funding gap whilst also boosting customer retention and engagement.

Fixing the funding problem

As we enter a new era for British business, the success and survival of small businesses could prove critical for the wider economy, as they drive growth, provide employment opportunities and open new markets. But to enable this success, we need to ensure that they can access the cash they need to thrive. This is where fintechs and alternative funding platforms have a critical role to play in providing fast, fair and frictionless finance.

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