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Over the last ten years the number of SMEs has been rising and they now make up 99% of the businesses in the UK. But the increase has not been equal across the board. “Micro-businesses”, companies with less than 10 employees, account for the majority of the increase, and OECD data shows that the UK is at the bottom of the table when it comes to growing businesses bigger than this.

While this is a testament to the entrepreneurial spirit of the British people, it’s not an optimal situation for the wider economy. Employees are more productive in larger companies, as they are able to specialise and focus. A typical zero-employee company will turnover roughly £51,000 per employee whereas companies of 250-500 people can achieve £186,000 per employee. Economic modelling suggests that the UK’s economy could be improved by around £20-£50 billion if its mid-size sector could be strengthened.

This message has been reiterated in a recent report produced in collaboration with both Oxford and Cambridge university business schools. According to the study, small businesses need better management skills and better access to finance in order to achieve scale.

0 employee companies turnover roughly £51,000 per employee, companies of 250-500 people can…
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Getting off the ground

The landscape for early-stage funding has improved immensely in recent years. As well as venture capital and angel investors, crowdfunding has enabled entrepreneurs to pitch for money from the ordinary public, and tax incentives such as EIS have made investing in start-ups attractive. Equity investment into small UK businesses rose 43% in 2015, to £2.4bn.

But once the business is up and running, finding additional funding becomes more difficult.

Equity investment into small UK businesses rose 43% in 2015, to £2.4bn.
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Finance angle: External Finance

Accessing finance is not always a smooth process. Many studies indicate that significant numbers of UK SMEs that apply for finance experience some difficulties; the government’s Small Business Survey found as many as 32% are wholly refused by the first source they approached. 42% of SME employers consider themselves poor at accessing external finance.

However, a study by the government think tank Demos suggests many companies turned down by traditional institutions are refused not because of poor creditworthiness or simple reluctance on the part of the banks, but because another source of finance would be more appropriate.

42% of SME employers consider themselves poor at accessing external finance
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Knowing your options

There are many new types of finance now available which have been specifically created to help smaller businesses. They enable businesses to access funds in a variety of ways, depending on what their goals are and what stage of life they are in.

To find out more about the key types of alternative finance, read our guide to the terminology here.

The post Better access to finance would help start-ups become scale-ups appeared first on FundingKnight.

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