Where Payments And Funding Fit Into The SMB Growth Trajectory

For a small business (SMB) to grow enough to expand across borders is an accomplishment by any definition, considering how many hurdles stand in a company’s way to achieve that goal. In the latest research from the Association of Chartered Certified Accountants (ACCA), analysts dove into what those hurdles are, finding evidence that domestic market conditions, regulatory red tape and the struggle to find adequate talent remain among the tallest and most difficult to overcome.

In its research, the ACCA’s identification of top barriers to global growth also uncovered key areas of opportunity for small businesses to clear those hurdles. The report, “Scale-up success: What do SMEs need to supercharge their growth?” indeed identified finance-related challenges as some of the top barriers to growth.

Unsurprisingly, access to finance is an essential component for small businesses to grow across borders, with one-fifth of all small businesses surveyed (global SMBs with fewer than 250 employees) agreeing that access to finance will be a significant barrier to growth for three years. This is even more true for high-growth small businesses, 26 percent of which agreed that access to finance will be essential for their continued growth ambitions.

Bank loans remain the most common source of external funding for the small businesses surveyed by the ACCA, but the report identified a surprising variety of funding sources, particularly for high-growth firms.

Friends and family, followed by bank overdrafts, also landed at the top of the list. However, trade finance, government grants, asset-based financing, equity finance and venture capital/private equity are significantly more common sources of funding for high-growth companies, compared to moderate-growth SMBs.

On the flip side, moderate-growth small businesses are more likely to answer that they “haven’t accessed any” external financing, compared to high-growth peers (22 percent versus 9 percent). According to the ACCA, not only is access to external financing critical to growth, but dedicating time and resources to the funding search is key, too.

Unfortunately, “most [SMBs] fail to allow themselves enough time to investigate the most appropriate external funding options for their business,” the ACCA stated. “As a result, [SMBs] may be less likely to access advice about external funding, either because they presume it is not appropriate for them or because they do not proactively consider alternative funding options.”

Access to funding landed on the top-five list of challenges that hold small businesses back from growth, as identified by the ACCA. The data suggested that SMBs that wish to become high-growth companies must understand the importance of access to finance, do their research and consider alternative finance products to obtain the capital they need.

In a statement, ACCA Director of Professional Insights Jamie Lyon pointed to the importance of seeking advice, whether it be related to financing or other areas of growth.

“Use external advice to develop what you have — [SMBs] can help improve their resilience by developing relationships with relevant sources of external advice,” he said.

Interestingly, however, the ACCA’s report also identified a less-discussed financial issue that landed on SMBs’ top-five list of biggest growth barriers: B2B payments. Poor and late payment practices ranked fifth on small businesses’ list of key hurdles over the next three years, with 22 percent of all SMBs saying this issue is a major barrier (20 percent of high-growth SMBs agree).

Access to funding was on SMBs’ top-five list, suggesting that small business owners are more concerned with getting paid late by their customers. Indeed, late payments were identified as the largest finance-related issue among small firms, following environmental factors, including the state of the domestic market, trade uncertainties, talent recruiting and regulatory compliance.