Gavin Wraith-Carter, general manager at Hitachi Capital Business Finance looks at how SMEs can achieve growth in the current market and how alternative funding can help businesses to achieve their targets.

As confidence continues into the final quarter of the year, the growth mindset is certainly very much alive among the UK’s 5.2 million small and medium size businesses . It is quite clear that businesses have slowly changed their outlook from defense to growth, with many bravely anticipating this ‘boom’ period two years ago. For those still in the starting blocks, the race is on to look for the best ways of growing their business sustainably that takes them ahead of the current growth cycle.

Our own research through our quarterly British Business Barometer looks at the way that SMEs strive for growth. The most recent findings suggest that businesses, quarter on quarter, are changing their focus from tighter management of financials to diversifying their business. Over one in four SMEs are looking towards different and new markets, a 13% increase on six months ago.

While diversification for many SMEs may be vital to grow and remain competitive, there are also those SMEs that will be shy of new markets and products. The challenge for any business looking to diversify or enter new markets is to first ask a number of questions such as, "Can I do more of the same in the same place?", or "More of the same in a different place?", or "Do different things in different places?" Given that many SMEs are often limited in resources, their appetite for diversification or entering new markets might be quite small, they are not going to suddenly develop a new product on a whim, so it’s more likely to be growth by evolution rather than revolution.

The challenge for the financial services industry is how best to support their ambitions, whether big or small. There is a huge appetite within the industry and there is more money in the market now than there has ever been. Hitachi Capital’s recent agreement with the British Business Bank through the Enable programme reinforces the industry’s commitment to understanding the specific needs of SMEs in offering tailored financial solutions that fit their business requirements. Regional funders are also having a significant impact and banks seem to have relaxed their lending criteria a lot more. However, when it comes to business finance, there is a continued mixed message in the market and it may well be that perception plays a huge part in this – once stung, it is perhaps hard to go back.

So, what can be done to shift these perceptions among SMEs? The problem is not one of a lack of awareness of the different funding options available it seems, but where they should be going in order to get access to different types of funding? And therein lies the issue – how can SMEs achieve their growth ambitions if they are unclear of the alternative financing options available to them outside of mainstream lending?

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As a leading provider of business asset finance, at Hitachi Capital we offer a range of financial solutions for businesses wanting to grow – not only because we provide the solid funding that they might need to allow customers to take their business to the next level, but for those who are looking to diversify their business or expand into new markets. We have products that allow customers to upgrade their production quality, deliver speed and be cost efficient in a way that is both cash flow cautious and prudent.

However, despite this, within asset finance an educational piece is still needed to raise awareness of the difference between leasing and hire purchase and how this can help their business. For example, whereas a Farmer might have a personal car on hire purchase, he or she might not have thought about also using hire purchase to fund a new tractor for the business.

When it comes to diversifying the business this is crucial, a business will have an improved chance of producing something new or slightly different to better efficiency or tolerances if they have superior equipment. Asset finance will help open doors, and while they might not generate income from that diversification immediately, they are on a steady path to growth and can add more equipment that is needed as the business requires.

It is encouraging that SMEs are looking to new horizons, but our research also found that many businesses are still overly focusing on financial control at the expense of new markets and diversifying. While keeping a close eye on finances is of course essential, an overly narrow focus will probably restrict growth. However, as with red tape and regulation, the financial aspect of running a corporate entity doesn’t necessarily fit well with the entrepreneurial approach.

The Small Business Commission has been tasked with looking at this and one suggestion is that a different entity could be set up that will not deter entrepreneurs from setting up a business so that individuals won’t worry about placing all their liabilities on the line. I think businesses are still, to some extent, weary of the events that happened in 2009, which will probably make us all a bit more risk averse for a few more years.

Whatever the economy holds for us all in the next three to five years, one thing is evident, there is confidence in the SME market, and this is mirrored in the support available from the UK Government’s own economic development bank, and the increased liquidity in the market. Our own research supports the view that businesses are developing greater confidence and that this positive outlook is broadening out across the sectors.

As the economic recovery continues to take shape, businesses will have the assurance to build on the strong foundations laid to date and start looking at new and alternative ways of growing a sustainable business for the future.

Gavin Wraith-Carter, general manager at Hitachi Capital Business