Blog: Top tips for securing finance for SMEs

18/08/16 - 16081801 - FRENCH DUNCAN    FINNIESTON    Iain Walker
Iain Walker

Scotland has an estimated 350,000 SMEs – most of which have or will face challenges with their growth and expansion. While common issues include retaining and attracting talent, managing cash flow and developing products, getting access to finance can typically be the most prevalent impediment to growth.

In this article, Iain Walker from Scottish accountancy firm French Duncan’s corporate advisory team, explains what SMEs can do to ensure they stand the best chance of securing funds to drive forward and expand their business.


There are two traditional financing options available for any SME - equity or debt. Equity requires the owner to make an investment into the underlying company in exchange for a shareholding, whereas debt financing requires no change in ownership structure and will require regular servicing payments to repay the loan.

Both have their advantages and drawbacks, for instance, benefits of equity financing is that the objectives of the shareholders will usually be aligned and the equity providers will generally offer sector expertise. Debt financing’s main advantage is that ownership is not diluted. A third funding route to also consider, which is often overlooked, is grant funding; although this can be dependent on meeting certain criteria, such as job creation, and can be sector specific.

Unsurprisingly, many SMEs experience problems when seeking to raise capital. There are, however, a number of steps that can be taken to improve the likelihood of receiving funding. Some of these include:

  1. Detailed Business Planning: It’s important that all businesses, regardless of size, develop a detailed business plan to instil confidence in potential investors. Investors will want to understand how the requested funds will be used, the financial impact on the business and ultimately that their potential investments are secure. Debt providers will be seeking to ensure that the business can adequately service the debt, whereas equity investors will also be considering their potential exit and the value. A good business plan will provide an overview of the business, its history, products/services, the target market, customers, management team and financial performance (both historical and prospective). The financial forecasts should consider cash generation and the funding requirements of the business, ideally there should be some headroom so that unexpected bumps can be addressed, without derailing any plans. The projections should be realistic, attainable but set to drive the business.
    1. Right Management Team: An investment in the company is essentially an investment in the management team’s vision. This team must show a strong confidence in the business, towards achieving its goals and ultimately be committed to driving the company’s performance. Management will need to demonstrate an excellent understanding of the business, its key products and have a good track record.
      1. Recordkeeping, Controls and Financial Monitoring: A businesses which demonstrates strong controls and an established infrastructure will stand an increased chance of obtaining finance. Systems and processes must be in place which will enable the business to facilitate its growth (i.e. tracking orders, stock levels and managing cash flow). Financers will also seek access to regular and timely financial reporting.
        1. Targeted Approach: Finding the right type of investment and right backer are both critical to the ongoing success of the business. In addition to considering the pricing of financing, the recipients of funding should look at the backer’s sector expertise and track record. Having a backer with limited industry expertise, could cause further stress on the management team and business.
        2. While this is not exhaustive, the above steps are guaranteed to put any SME on a better footing when it comes to securing financing.

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