Credit cards are increasingly becoming the go-to quick-fix solution despite carrying drawbacks and being a less efficient form of financing for SMEs. Over half of the UK’s SMEs are reliant on credit cards to support their business day to day.
That is according to a new report commissioned by GRENKE UK. The report was designed to understand the current state of SME financing in the UK. The survey of 600 business owners across the UK found that after credit cards, business overdrafts and bank loans are jointly the second most popular form of financing amongst SMEs. 39% of respondents use these options. Meanwhile, 33% reported that government loans are their primary form of financing, reflecting the high levels of government financial support provided to businesses following the onset of the Covid-19 pandemic, and more recently the energy crisis.
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Across the eight sectors examined, the Lease of Life report found that SMEs in the retail sector are the most likely to rely on credit cards with nearly 60% sticking their costs on card, despite the limited nature of this form of financing as well as the increased risk of exposure to higher interest rates.
SME’s suffering from lack of access to information
Looking more closely at alternative forms of finance available to SMEs, whilst 66% of respondents have considered using asset finance, 10% feel they don’t have access to sufficient knowledge or information to choose this option.
David Horton, Managing Director of Sales, GRENKE UK, said: “While credit cards may be easy to secure, it is surprising how many SMEs have become reliant on this type of finance to fund their business. Findings from our Lease of Life report and conversations with the Equipment Supplier community have shown that many of the UK’s SMEs still have limited knowledge of the various forms of financing available to them. As high interest rates begin to hit on demand, employment, and business confidence across the economy, it is critical SMEs need to be far more aware on the financial options available to them and which will give them their opportunities for growth.”
The report also found there is a significant opportunity for asset finance to play a bigger role in SME growth opportunities. Increased use of asset finance amongst eligible UK SMEs across eight major industries, has the potential to contribute £7.6bn annually to national GDP and up to 114,800 jobs by 2025.
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By GlobalData
