‘UK finance flaws failIing start ups in Scotland’

Small businesses in Scotland are being failed by antiquated financial process as nearly half of Glasgow SMEs are forced to raid their savings (47 per cent) or borrow money from family and friends (20 per cent) to start or grow their business, according to independent lender LDF.

Funding issues topped the list of difficulties people faced when setting up a new business in Glasgow (30 per cent) whereas Edinburgh entrepreneurs said their biggest problem was insufficient capital (30 per cent).

Excessive red tape is also putting up barriers in Scotland with 28 per cent of Edinburgh SMEs and 20 per cent of their Glasgow counterparts citing this as an issue.

A nationwide survey of 850 SME owners/decision makers by LDF across the country, the UK’s largest independent finance provider to SME businesses, revealed that many businesses in Scotland had no financial organisation supporting them so had to find funds from elsewhere, with 66 per cent of Edinburgh SMEs and 56 per cent of Glasgow entrepreneurs criticising the British banking system for not being “business friendly”.

When the “dream” of becoming your own boss becomes a reality, almost a third of Edinburgh SMEs even say goodbye to a regular monthly salary due to cash flow issues (30 per cent).

Glasgow SMEs fare slightly better with only 16% missing out on pay. Worryingly, one in ten Edinburgh entrepreneurs said financial ‘blocks’ almost led to them closing down (8 per cent).

Looking at the nationwide statistics, the average funding requirement to get a business set up in the UK is a cool £27,520, so funding is clearly a burning issue for the budding business. Manchester businesses require the biggest cash injection on average in the UK (£44,733), with Glasgow not too far behind on £41,936. Edinburgh SMEs, in comparison, only need an average of £22,990 in funding to help them launch.

The research also highlights which UK regions are leading the way in their sectors. Liverpool is the education leader with 12 per cent of start-ups in this field, whereas Southampton comes top for IT (18 per cent) and Edinburgh and Newcastle for finance (10%). Cardiff leads the way in manufacturing with 18 per cent of its SMEs focused on manufacturing. Arts and culture is flourishing in Bristol (10 per cent) and professional services is big business in Southampton (18 per cent).

Interestingly, almost one in 10 (9 per cent) of SMEs think location played a vital role in the success of their business. Rental costs can be a main determinant in choice of location with Belfast (46 per cent), Liverpool (36 per cent), Cardiff (34 per cent), Leeds (32 per cent) and Sheffield (32 per cent) all citing this as a reason for their address choice, with 31 per cent of Londoners (with some of the highest rates in the country) citing it too. Low rental costs were less of a factor for SMEs in Edinburgh and Glasgow in choosing where to operate (22 per cent). Instead, SMEs in these two cities favoured their accessibility (30% in Edinburgh, 36 per cent in Glasgow).

Peter Alderson, managing director at LDF, said: “Over 99 per cent of private sector firms in the UK are made up by small to medium-sized businesses and whilst this sector is clearly thriving, our survey sheds light on the harsh financial realities faced by start-ups and established businesses alike.

“With over half of SMEs in Scotland stating that they do not find banks to be business friendly, many experts cite that small to medium-sized business owners are instead turning to alternative finance options as it helps people spread the cost of business investment and expenditure.”