It’s no secret that businesses have faced challenging times in recent months. ICAEW’s Business Confidence Monitor (BCM), one of the largest and most comprehensive surveys of business conditions, remained in negative territory for most of 2022. Inflation, energy costs, supply chain challenges, access to skills and political instability have acted as an unwelcome and persistent brake on business buoyancy.

BCM Q1 2023 saw a welcome return to positive territory, but only just. Nonetheless, the economic landscape remains challenging with many businesses adopting a wait-and-see approach rather than a proactive drive to invest and grow. There are signs, however, that growth is back on the agenda and – helped by announcements in the Spring Budget – investment decisions are once again being considered. 

The energy cost spike and difficulties in attracting and retaining talent have been a catalyst for interest in green technology and investment in automation respectively. But the capital investment required – against a backdrop of squeezed margins and depleted cash reserves – hinges on the ability to access finance. And yet, access to finance in recent months has been an ongoing challenge widely reported by ICAEW business members across a multitude of sectors.

Traditional bank finance has not only become more difficult to secure but also, given the rise in interest rates, much more expensive to service. The loss of personal relationship managers in high street banks has been cited as a principal cause of issues. 

Automated services won’t always ‘read’ a business and back its vision in the same way as a commercially astute bank manager. Recent trading results, negatively impacted by macroeconomic conditions, may negate an opportunity to borrow now, to fund investment decisions that could see a business not just survive, but thrive in the future. 

The spate of recent bank collapses hasn’t helped the lending landscape. Cast your minds back to the financial crisis of 2008 and the contagion that spread through the financial system. Although the financial sector is now much more robust and far better able to withstand financial shocks, memories are short. 

Members report that banks remain risk averse when it comes to lending decisions. For businesses in consumer-facing sectors, including construction, retail and hospitality, there’s a consensus that banks “need a lot of convincing and reassurance that loans can be repaid”. Where loans are forthcoming, there is increasingly a requirement for personal guarantees. 

One member summed up the situation as there being a “different feel in banking”, with a noticeable “lack of support in looking at business plans and to the future”. Post-COVID-19, banks are increasingly doing most of the work remotely, but “understanding a business through a piece of paper is much more difficult than face to face”.

An additional problem cited by members has been the time to make decisions. Whether it’s opening an account or more complex transactions, members report that UK banking systems and processes are often slower than those used by overseas banks. KYC (Know Your Customer) is one area where legacy systems have been slow to keep pace with the speed offered by modern technology. 

For a time, challenger banks looked to offer quicker decisions and more flexible lending criteria, but following the collapse of Silicon Valley Bank (SVB) and Signature Bank in the USA, as one member reported, “they suddenly seem riskier”.

Other forms of borrowing are an option, but these are less well understood by many smaller businesses. Business angels, venture capital and private equity could prove a viable alternative to traditional bank finance, but their perceived additional complexity is a barrier to uptake. 

The subject of alternatives forms of finance was the subject of a recent ICAEW Insights podcast, covering the options available and considering the perspective of banks and equity backers. 

ICAEW also works closely with the British Business Bank and its Finance Hub contains a wealth of information on business grants, business loans, angel investment and other forms of finance. 

What’s certain is that for businesses to reach their full potential, at some point on their growth journey they will require access to finance. ICAEW’s Business Finance Guide draws on the expertise of partners from across the finance industry and business community on finance options available.