Guy Tolhurst: How SMEs should approach finance

The growth journey is different for every business, Guy Tolhurst shares tips for business owners considering taking on external capital.

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Cherry Reynard
Published: 03 Jul 2019 Updated: 13 Jun 2022

Guy Tolhurst is an entrepreneur, author and small business champion. He runs three small businesses that help investment to flow into growing companies, and this year will host the first Growth Finance Awards, celebrating the lenders that offer ‘more than finance’ to SMEs.

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With a thriving entrepreneurial culture, the UK is the third-largest producer of start-ups in the world. People up and down the country are setting up businesses — innovating, disrupting, and having a go.

In 2017 (the last year that data is available) more than 382,000 new businesses began trading. That brought the total number of small firms to 5.6 million, employing 16.3 million people.

But despite this wave of entrepreneurship, the UK struggles when it comes to scaling up those businesses. There are still too few fast- growing companies, even though there are some encouraging signs — the latest ONS figures show that the number of scale-ups (companies growing by 20% per year) grew by 3.7% in 2017.

Part of the problem is that small businesses tend not to use finance (which in this article is taken to mean debt, not equity).

A recent poll by BVA BDRC found that only a third (32%) of small businesses are happy to use external capital to help them grow.

So why are business owners so reluctant to borrow? Some business owners simply don’t want to — they would rather grow at a slower rate than burden themselves with someone else’s money.

For other SMEs, though, the problem is a lack of information. Many busy business owners simply don’t know about the range of products available to them.

This has given rise to what is known as the ‘perception gap’: a belief by some entrepreneurs that if they apply for finance they will probably be rejected. However, the data shows that eight out of ten businesses that apply for a loan are successful. And there are lots of lenders who specialise in working with small businesses, who are used to first- time applicants.

Using finance isn’t for every business. But if approached intelligently and delivered by the right provider, growth finance could help many of the UK’s small businesses.

The growth journey is different for every business, but here are some general tips for business founders who are weighing up whether to take on external capital.

  • The first thing a business owner should do is set out its goals in the short, medium and long term to determine whether finance is the right course of action. Does the business want to access new markets, for example, or develop new products? And if so, can it do so through its own cashflow or does it need a capital boost?
  • If an owner decides that their business needs external capital, then the next course of action will be to decide which form of finance is the right kind. There’s a rich variety of finance available to growing companies, depending on factors like how its business is structured to the different kinds of assets it can offer as collateral. From bank loans to invoice financing, from asset finance to venture debt, deciding on the right kind of capital will be important.
  • Do plenty of research on the different capital providers. There are more lenders available to SMEs than ever before, and each of them will offer something slightly different. A business founder can use their peer network to learn about different finance providers, as well as excellent online resources such as the Finance Hub by the British Business Bank.
  • Finally, take every possible step to ensure that the business partners with the right lender. For growing businesses in particular, it’s important to find a lender that understands the needs of the company and is looking for a long-term relationship. Things can change quickly for a small business, especially during periods of fast growth, so it’s important to choose a supportive finance provider.

Summary of the different kinds of growth finance

More and more small businesses have been using equity capital in recent years, but for the sake of simplicity this list only features debt options.

  1. Loans & Overdrafts
  2. P2P business loans
  3. Leasing & hire purchase
  4. Invoice financing and factoring
  5. Asset-based lending
  6. Venture debt
  7. Direct lending
  8. Export finance
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By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.


This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.