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Funding issues confronting high growth SMEs in the UK

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  • Brown, Ross
  • Lee, Neil

Abstract

How do we ensure that companies with the potential to grow do so? Does a lack of finance prevent firms from growing and benefiting the wider economy? These are important questions if we are looking for economic growth. There has been much focus and debate on the funding issues affecting small and medium sized entities (SMEs), but this report takes that debate a stage further by investigating ‘high growth SMEs’. One of the 14 published policies of the Department of Business, Innovation and Skills (BIS) in the UK is ‘Making it easier to set up and grow a business’. This report aims to provide evidence for the debate on how this policy can be achieved and covers both supply and demand issues for high growth SMEs. It does so by a review of the existing literature, an analysis of the Small Business Survey, undertaken by BIS, and a series of in-depth interviews with a small number of high growth SMEs. The study finds that although high growth SMEs are 9% more likely to apply for finance than other SMEs, they are no more or less likely to be successful. Importantly, these firms are identified as highly ‘reluctant borrowers’ rather than ‘discouraged borrowers’ – that is they are just unwilling to borrow, even to fund growth. This reluctance stems from a lack of trust of banks and a resistance to any dilution in their own autonomy. A number of policy implications are drawn from this research by the authors, with recommendations for both the supply and the often neglected demand-side of funding. Most importantly, though, there is a need to consider how ‘reluctant borrowers’ may be transformed into ‘willing borrowers’ and how demand for finance may be stimulated in the future.

Suggested Citation

  • Brown, Ross & Lee, Neil, 2014. "Funding issues confronting high growth SMEs in the UK," LSE Research Online Documents on Economics 57264, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:57264
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    File URL: http://eprints.lse.ac.uk/57264/
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    References listed on IDEAS

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    Cited by:

    1. Robert Gampfer & Jessica Mitchell & Blagoy Stamenow & Jana Zifciakova & Koen Jonkers, 2016. "Improving access to finance: which schemes best support the emergence of high-growth innovative enterprises? A mapping, analysis and assessment of finance instruments in selected EU Member States," JRC Working Papers JRC102928, Joint Research Centre (Seville site).
    2. Esho, Ebes & Verhoef, Grietjie, 2018. "The Funding Gap and the Financing of Small and Medium Businesses: An Integrated Literature Review and an Agenda," MPRA Paper 90153, University Library of Munich, Germany, revised 21 Nov 2018.
    3. Sandra Bernick & Richard Davies & Anna Valero, 2017. "Industry in Britain: an atlas," CentrePiece - The Magazine for Economic Performance 513, Centre for Economic Performance, LSE.
    4. McQuinn, Kieran & O’Toole, Conor & Economides, Philip, 2018. "Quarterly Economic Commentary, Autumn 2018," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC.

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    • N0 - Economic History - - General

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