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How to grow and innovate your business with the right debt financing structure

SMEs are at the heart of the UK’s economic development and a large part of their existence and success is down to getting the right funding. Funding for much-needed investment, scaling up innovation and delivering new products.

The right funding support ensures businesses are in a strong financial position to grow.

Traditionally, there has been a reliance on banks to provide enhanced funding services to small businesses. However, post-pandemic, SMEs are far more aware that banks have retracted previous financial support.

As part of a stricter risk assessment, Banks now have more stringent eligibility requirements for lending that small businesses are finding it harder to navigate these criteria and meet these areas.

This has led to an increase in loan rejections rates, stalling SME growth plans.

But now this isn’t necessarily a bad thing. In fact, SMEs are starting to see the value in better understanding and engaging with the varied alternative funding options available.

Away from the impersonal, one-size-fits-all approach of banks and their limited loan term flexibility, small business owners are preferring to work with lenders who understand their unique challenges and are willing to provide more flexible financing solutions.

After all, the challenges SMEs face (rising inflation, higher energy prices and labour and supply chain shortages, and consumer spending reducing) is already an ecosystem that could be problematic. Adding to this unkind lending terms and a straight debt rather than a long-term partner, makes little sense.

SMEs now focus on not just finding the right financing, but the right funding partner.

Debt Financing for Growth - SME Capital

Finance is key to growth for UK SMEs

What unifies these perspectives is that finance will play a key part in the growth of UK SMEs.

We are at a critical juncture for SMEs and finance. Many benefitted from the UK Government’s stimulus support, with some borrowing for the very first time. The pandemic also forced SMEs to consider their strategy: what they sell, whom they serve and how they distribute products and services. Investment is integral to leveraging that innovation into scale and profitability.

The best way to use debt capital to grow your business depends on the specific needs of the business. 3 core areas where debt financing is commonly used are:

Expanding operations

If your business is growing rapidly and you need to expand your operations, you can use debt financing to invest in new machinery, equipment, or infrastructure. This can help you increase production, improve efficiency, and meet the growing demand for your products or services.

Developing new products or services

If you are looking to develop new products or services, debt financing can help fund the research and development required to bring these new offerings to market. This can help your business stay competitive and appeal to a wider range of customers.

Talent Acquisition

Another way to utilise debt financing is to invest in talent acquisition. As your business grows, it will need more skilled employees to manage operations and drive growth. Using ‘growth’ debt capital to attract and retain top talent can be an excellent long-term investment. This can include recruiting new employees, offering training and development opportunities, or even acquiring other businesses with complementary skill sets. By investing in talent, you can build a strong team that is capable of achieving your growth objectives and sustaining long-term success.

A changing attitude

What’s noticeable in recent years is that there is a changing attitude to taking on debt versus giving up equity in a business for investment. As the Government schemes now phase out, the strategic use of debt capital to fuel growth ambitions of small businesses, remains on the table.

Why do SMEs still shy away from it?

The age-old sentiment that “debt is bad” comes to mind, and there is certainly still a lack of understanding on the value of taking on debt to grow your business.

But more so it’s that previous lack of options when it comes to specialist alternative lenders, such as SME Capital.

When it comes to SMEs, there is no ‘one size fits all’. From the sole trader working alone on a market stall to the manufacturer with over 200 employees, the wants and needs of the entrepreneur vary considerably. Lenders must match each SME with the right finance.

At SME Capital, we know all businesses are not the same. So we provide bespoke, long-term growth capital funding solutions to UK businesses not one-size-fits all blanket loans. We exist because we truly believe we provide a better alternative with our custom-made funding solutions for UK businesses to help you grow and succeed.

It’s in our DNA.

We are experts in SME lending, so whatever the loan purpose, our goal is to become your long term funding partner, which is why each bespoke loan will be specially-designed for you. We provide the best growth capital funding solution for you, without you giving away control or equity.

We understand the importance of trusted relationships and have dedicated regional directors based across the UK who will take the time to understand your business, your unique needs specific to you and support you with your business loan application. We enhance our traditional underwriting with data analytics, including timely risk and trend analysis to put you in control of your future.

What are the key considerations for a small business
before acquiring finance?


Financing Purpose: Clearly identify the purpose of acquiring debt finance. Determine whether you need funds for working capital, purchasing assets, expanding operations, launching a new product or service, or any other specific business objective. Understanding your financing needs will help you choose the most appropriate financing option.

Financial Assessment: Conduct a comprehensive assessment of your business's financial health. Evaluate your current cash flow, profitability, debt levels, and creditworthiness. Understand your financial strengths and weaknesses, as this will influence the type of financing you can qualify for and the terms you can negotiate.

Business Plan and Projections: Prepare a well-structured business plan and financial projections that outline your business's growth strategies, revenue forecasts, and how you intend to utilize any debt financing you take on.

Eligibility and Requirements: Assess the eligibility criteria and documentation requirements for each lender you are considering. Understand what lenders typically look for in terms of credit history, collateral, business performance, and any industry-specific factors.

Cost of Financing: Evaluate the costs associated with acquiring financing and key factors such as interest rates, fees, repayment terms, and any additional charges. Calculate the total cost of financing over the loan or investment term to understand the impact on your business's profitability and cash flow.

Risk Assessment: Assess the risks associated with acquiring financing. Consider factors such as repayment obligations, potential changes in interest rates, the impact on cash flow, and any required collateral. Understand the risks involved and have contingency plans to mitigate them.

Relationship Building: Consider the importance of building relationships with lenders. Do your own DD and research the reputation, credibility, and track record of the lender you plan to engage with. Strong relationships can lead to more favourable financing terms and additional support in the long run.

Legal and Regulatory Considerations: Understand the legal and regulatory implications of acquiring finance. Be aware of any legal obligations, contractual agreements, or compliance requirements associated with the financing option you choose. Seek legal advice if necessary to ensure you fully understand your rights and obligations.

If you would like to discuss acquisition financing in more detail or our wider funding capabilities do get in touch.

About SME Capital

SME Capital was founded to support the growing number of SMEs who face difficulty or frustration in accessing capital through traditional methods. We understand the importance of real and trusted relationships in the SME lending market and have dedicated Regional Directors based across the UK. By combining traditional lending expertise with the latest in data analytics, we are supporting established UK SMEs with their long-term objectives and business ambitions.

September 2023

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