Small businesses form Britain’s economic backbone but are sadly overlooked when it comes to financing. This presents UK PLC with a major problem.

SMBs employ 60% of all people in the private sector and generate 52% in GDP. However, they face difficulties when it comes to accessing finance and this is stifling their growth potential - putting employment and revenue at risk. Tackling funding challenges is critical to enabling these businesses, and the country as a whole, to thrive.

Funding - the business lifeline 

When we think about the challenges faced by small businesses, it is easy to focus on business rates and Brexit. The issue of funding tends to be overlooked. However, in reality, funding is the lifeline for all types of business. Without it they stop growing or, worst case scenario, actually fail.

For small businesses the issue is exacerbated. They are unable to shoulder high-cost initiatives without support. Examples include expanding into larger premises, hiring more people or improving equipment; these are all drivers of growth which can be inaccessible without financing.

However, for small businesses, access to funding is a serious challenge. Sourcing finance from traditional partners such as banks is getting harder. In fact, bank credit to small businesses has declined more than £2.2billion in half a decade.

This is because regulation and structural issues make it unprofitable for banks to issue financing under £25,000 - often well over many small business’ needs. Banks are therefore struggling to offer the funding that small businesses actually need; it is inefficient and unprofitable for them leaving small business owners no choice but to look elsewhere.

Fresh-thinking funding

This funding gap however, should not exist. By thinking creatively, a wide range of businesses with their own small business customers can open up funding as an additional value add. Payment acquirers are one great example here.

As they have a view of the performance of their customers business via the card transaction data. By partnering by a business cash advance provider, they can offer a great small business funding, that’s actually paid back via their card transactions processed by the acquirer.

The same principal applies to any organisation working with small businesses. By offering funding via loans or cash advances, they can help their customers grow and prosper while delivering a value add that boosts customer retention.

For small businesses, finance becomes accessible through a solution that removes much of the headache and paperwork involved in working with a bank. Another benefit to this approach is the ability to deliver a flexible approach to funding.

For example, some small businesses operate as seasonal specific businesses meaning that sales fluctuate throughout the year. Whereas a traditional loan would need to be repaid every month, businesses that offer funding through a cash advance can do so on terms that allow payments to be made only when a business itself is earning.

The power of data

Organisations that count small businesses as their customers hold a great deal of expertise that can transform small businesses from struggling shops to successful startups. The challenge is in accessing and analysing the information to enable this transformation.

Here again, payment acquirers are a useful example; they have the ability to pull annual payment data for small business owners. This insight can help small businesses forecast their pipeline and plan for coming months.

Should the payment acquirer want to make finance available to small business customers, they can use these insights to make smart decisions that minimise risk. They can then work with a financial partner to analyse real payment data and offer custom funding offers for each eligible customer.

The small business funding landscape is changing. While there is no doubt that banks and more traditional providers still have a role to play, there is an opportunity for organisations to support their small business customers through an even closer relationship.

The good news for small businesses is that new funding options are opening up all the time. By working with innovative fintechs, organisations with small business customers can fundamentally change the way that their customers access funding.

Ultimately these businesses make up the economic backbone of the UK, so it is critical that they are supported in the right way.

Rob Straathof is CEO of Liberis Group.