Equity finance growing in popularity among SMEs

Posted on Wednesday 25th January, 2017 by

UK SMEs are increasingly attracted to long term equity finance, according to new research published today. The latest Albion Growth Report reveals that more than two-in-five (44%) small and medium sized business (SME) owners would consider taking equity finance, up from 34% a year ago. In 2013 just 12% of SMEs were willing to swap equity for support.

In addition, over a quarter (26%) of business owners would consider a ‘Dragons Den’ style exchange of equity for hands-on support from venture capital, private equity or business angels, rising to almost four-in-ten (35%) among firms with more than five employees. Over the same period, demand for traditional bank finance fell to 45%, down from 49% in 2015, suggesting that the UK SME sector is pivoting away from its reliance on debt.

The data perhaps reveals continued weariness and distrust of banks, many of which have withdrawn from the SME market since the financial crisis of 2008.

“A psychological shift”

Patrick Reeve, managing partner at Albion Ventures: “It’s a vote of confidence in the post-Brexit economy that demand for equity finance continues to grow among entrepreneurs, underlining a psychological shift from the traditional reliance on bank debt as the source of growth finance.

“What is particularly welcome is the emergence of the ‘Dragon’s Den generation’ – those under 35 who embrace an equity culture. The greater willingness of younger CEOs to use equity rather than banks to secure the funds they need suggests we’re shifting towards a more entrepreneurial model as seen in the US.”

A closer look at the figures shows that in terms of sector splits, appetite for equity finance was the strongest by far among IT and telecom firms (52%), manufacturers (40%) and transportation and distribution companies (32%). Construction firms trail at just 13%. On a regional basis, SME owners in London are the most likely to consider equity investment (37%) followed by those in the East of England (35%) and Scotland (29%).

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