Borrowing soars among small firms

Albion Ventures, a venture capital investor, says 29 per cent of those who secured finance invested in new equipment, while 26 per cent used the money to develop new products and services.

However, only one in 10 used the money to invest in R&D, a key driver of longer term success.

The third Albion Growth Report polled 1,000 SMEs and also found bank loans and overdrafts fell in popularity, down to 49 per cent this year from 76 per cent in 2013.

However, the popularity of using third party equity or other long term finance has soared from six per cent in 2013 to 34 per cent in 2015.

Despite the improvement, some 18 per cent of SMEs said they were affected by a lack of access to finance with the percentage rising to one-third (32 per cent) among medium-sized firms with a turnover of between £500,000 and £1million.

Younger entrepreneurs aged under 35 were the most likely to report difficulties in raising money – 28 per cent. This is almost double the number of business owners over 55 – at 15 per cent.

Patrick Reeve, managing partner at Albion Ventures, said: “The UK economy continues to strengthen, providing excellent growth opportunities for UK businesses. Concerns about access to finance have given way to shortages in skilled staff and insufficient management expertise.

“It is a hugely optimistic climate, and we should be encouraged by the revelation that such a high percentage of firms are looking to raise finance.”