85% of UK SMEs are unaware of revenue-based finance

Education needed if SMEs are to understand the benefits of open banking and embedded finance

85% of UK SMEs are unaware of revenue-based finance options, according to research published this month by Liberis.

Liberis, the leading embedded finance platform, commissioned YouGov to conduct research into SME attitudes on new forms of finance.

Their findings highlight a striking lack of awareness among UK SMEs about new forms of finance. In 2022, financial providers may assume SMEs have clarity on services such as revenue-based finance and open banking, but Liberis’ research shows this is not the case.

The groundbreaking survey revealed that:

• 85% of UK SMEs say they have never heard of revenue-based finance
• Only 6% of SMEs say they are aware of what open banking is and that their organisation currently uses it

This lack of awareness is hurting SMEs. They’re left grappling with costly, time-consuming forms of finance at a time when they can’t afford any more barriers to funding.

As many SMEs don’t have a full-time finance function, the onerous process of applying for funding is significantly eating up their time and holding them back.

However, providers can support SMEs in accessing funding by educating them about the range of finance options at their disposal. If providers can increase awareness of new finance solutions that offer unique SME benefits, they can help fuel SME growth as well as expand their own revenue.

One such solution is revenue-based finance. It’s ideally suited to SMEs as payments for the finance are made as a percentage of revenue (meaning a period of lower revenue doesn’t increase stress on SMEs) and businesses can apply online in a matter of minutes.

When educating SMEs, financial providers should also pay attention to what these businesses prioritise.

Liberis found that:

• Among SMEs who apply for funding, one third (33%) of SMEs lower interest rates would make it easier to apply and one quarter (26%) said pre-approval would make it easier
• Among all SMEs, cost, trust and ease of application are the top 3 biggest factors SMEs consider when looking for funding.
  • 45% of SMEs say they consider cost, 39% consider trustworthiness of provider and 32% consider ease of application.

Rob Straathof, CEO of Liberis, commented:

“These findings are a real eye opener about the levels of awareness around new forms of finance among UK SMEs. This represents both a challenge and great opportunity for trusted finance providers to educate the market.

SMEs are open to change but they need to be guided to see the benefits of innovative new forms of finance. Demonstrating the cost-effectiveness, speed and ease of these new services, such as revenue-based finance, will be crucial in encouraging the SMEs to change.

Financial providers must also ensure they understand the concerns and priorities of SMEs to develop solutions that make funding easier and more accessible.”

There’s also an opportunity for finance providers to educate SMEs about alternative banking partners.

Liberis’ research found that:

• Almost 8 in 10 UK SMEs (79%) say their main business bank account is currently held with a traditional bank. Barclays is the most popular banking partner with 19% of SMEs holding their main business bank account with them.
• Only 7% of UK SMEs used a challenger or non-traditional bank as their main business bank account.
• Of UK SMEs who have sought funding, 43% say they sought funding from their main banking provider. Only 14% say they sought funding from an alternative banking provider.

The current low levels of interaction with SMEs mean they represent an area of great possibility and future growth for alternative banks.

Given SMEs’ comfort with traditional banks, one way alternative banks could encourage SME interest would be through partnering with those traditional banks to offer SME services. Using pre-existing SME relationships in this way would allow challenger banks to establish themselves as trusted finance providers and build loyalty with SMEs.

Liberis’ research highlights the need for SME education on new forms of finance. Lack of awareness is holding SMEs back from the benefits of open banking, alternative banking and embedded finance. Trusted leaders have an opportunity here to educate the market and dismantle barriers to funding, fuel the SME economy and grow their own customer base.