The latest Scottish Pacific SME Growth Index shows that SME owners are optimistic about revenue growth, had improved cash flow in 2017 and are increasingly looking at non-bank lending options to fund growth.
Among SMEs planning to invest in expansion over the next six months, 24 per cent said that they will fund growth by borrowing from their main relationship bank. The number shows a continuing downward trend and is well below the high of 38 per cent who nominated this option to fund growth in the first round of the index in September 2014.
More than one in five SMEs (22 per cent) plan to use alternatives to their main bank to fund upcoming growth.
Scottish Pacific CEO Peter Langham said that the March 2018 index shows 50 per cent of SMEs forecasting positive growth revenue — the most since March 2016, but is well below the high of 62 per cent in September 2014. Their average estimated revenue increase is 4.3 per cent.
Two-thirds of SMEs reported better or significantly better cash flow compared to 12 months ago.
At the other end of the scale, one in four SMEs forecast negative growth (on average dipping by 6.4 per cent), the highest average since the index began in 2014.
One in 10 SMEs said that their cash flow is worse now.
“Whether business owners are optimistic or pessimistic about revenue growth and cash flow, across the board they highlight the major impact of cash flow issues on their operations,” Mr Langham said.
“I think what brokers can take away from our latest index results is that, given the growing appetite among SMEs for non-bank funding, brokers are in the box seat to help their clients select from a growing range of funding solutions,” the CEO added.
The index shows that of the non-bank lending options SMEs said that they used in 2017, 77 per cent selected debtor finance, 23 per cent used merchant cash advances and 10 per cent used P2P lending.
Mr Langham noted that growth SMEs were five times more likely to use alternative lending options.
“For brokers with clients dealing with these issues, it pays to take a broad look at the best options available,” the CEO said.
Ninety per cent of SMEs said that they had cash flow issues in 2017, and they indicated that this had a significant impact on potential revenue.
“Brokers are on the front line of knowing about the best working capital options to ease these cash-flow concerns,” Mr Langham said, “and Scottish Pacific has been pleased with the increasing number of brokers bringing their clients to us to solve working capital issues.”