Businesses need to grow for various reasons: to satisfy increase in demand, expand a product line, or strengthen their competitive positions. Very often businesses rely on external financing to operate and grow. The most common types of finance are loans from banks, building societies, bank overdrafts, leasing or hire, credit card, and government or local authority grant schemes.
External finance applications do not always get approved. About one in five SMEs reports that all their applications were rejected. In these situations, businesses could approach alternative forms of finance such as peer-to-peer loans, crowdfunding, equity finance or factoring/invoice discounting. Not to be underestimated are loans from family and friends, which, while often not high in value, might turn out to be lifesaving to a small business.
In the UK, SME lending constitutes more than one third of business loans. In September 2019 alone, the small and medium enterprises sector received more than 4.6 billion British pounds from monetary financial institutions, which includes banks and building societies.