3 key issues facing SMEs as we look to 2018

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3 key issues facing SMEs as we look to 2018


Small and medium sized businesses have continued to show immense resilience since the financial crisis 10 years ago. As the UK prepares to exit the European Union, these businesses – currently contributing £1.8 trillion to the UK economy – potentially have another gargantuan set of challenges ahead.

A recent report from Sage and Nesta shows that the UK’s SMEs are currently in the strongest position they’ve been in since the recession but, despite this, four key issues have emerged.

Job creation

The report, ‘The State of Small business: Putting UK entrepreneurs on the map’, highlights how vital SMEs are for the British economy, describing them as a “core part of our social fabric and [the report] shows that entrepreneurial culture in the UK is booming.”

There are almost a third more SMEs trading today than there were ten years ago and they have created over 2 million new private sector jobs since 2010, constituting 73% of the total, despite accounting for just 60% of private sector employment. This is in part driven by a long-term rise in self-employment alongside rising full-time employment – many are taking their work into their own hands and trying their hand at entrepreneurship.


Despite employment and turnover generally trending upwards since the recession (+18 per cent and +17 per cent respectively), productivity has not increased at the same rate - a primary cause for the fall in the value of real wages. Many entangled factors affect the productivity of SMEs both internally and externally, but this report finds a gap in digital skills to be a particularly prominent issue.

Productivity was found to have a positive correlation with the number of people in a local population with NVQ4+ level qualifications. As technology develops and grows exponentially, SMEs have many opportunities to optimise their processes; having employees who are equipped to take advantage of these opportunities alone could help drive an 8 per cent increase in productivity.

The report goes on to discuss the correlation between productivity and SME survival rates. While the failure of SMEs might imply a bad landscape for start-ups and entrepreneurship, the findings show that “creative destruction is a critical force for productivity growth” and thereby good for the economy. Dispelling that myth, the findings actually present a negative relationship between productivity and survival rates, in that the areas in the UK with the highest productivity in fact have the lowest SME survival rates.

Access to suitable finance

A plethora of funding options are now available for SMEs and the Government has taken steps to boost this vital space. The recent appointment of the Small Business Commissioner offers a figurehead with the potential to positively influence policy for SMEs, especially when it comes to the huge sums of money owed to them through overdue invoices.

Furthermore, the recent bank referral scheme was designed to help businesses access funding by obliging traditional finance providers to refer businesses that they reject on to designated alternative aggregators. Despite the sentiment, the scheme has provided less than £4m to SMEs in its first nine months of operation. Perhaps a scheme around the more prominent issue of a lack of education and awareness of alternative financiers is the logical next step, promoting the sector and offering easy access to a breadth of digestible, standardised information.

Another new government-backed scheme comes via UK Export Finance, which recently announced its partnership with five major high street banks to offer SMEs finance for up to £2m to “to help them to become part of major export contracts”. Banks included in the partnership include Barclays, HSBC, Lloyds, RBS/NatWest and Santander.

The national chairman of the Federation of Small Businesses (FSB), Mike Cherry, said: “the success of the UK economy rests on helping more small businesses to export and export more,” going on to state that 20 per cent of the UK’s small firms already are exporting.

It was important to hear the Prime Minister’s praise of the innovators and entrepreneurs as well as businesses both big and small, in her recent Conservative Party conference speech. To keep driving the benefits that SMEs bring to the economy, the Government is being pressed more than ever before to provide support not just by introducing schemes such as those we’ve mentioned above, but by offering transparency and clarity and by making swift decisions during this period of political uncertainty.

If you are an SME or an adviser to an SME and you would like to discuss a funding requirement with us, send us an email at finance@ukbondnetwork.com.

16th November 2017

By Izzy Werffeli

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