Virgin Money’s announcement that it has shelved plans to move into business banking due to economic uncertainty following Brexit sent shockwaves through the banking and SME sector on Wednesday.

This, coupled with a letter issued by Royal Bank of Scotland and NatWest to their 1.3 million business customers warning if the Bank of England reduces the already low (0.5%) base interest rate, businesses would be charged to deposit money at the bank, has left many SME owners concerned about what the future holds for their finances and cash flow.

The 5.4 million SMEs registered in the UK accounted for 99.9% of all private sector businesses at the start of 2015, a year which saw the highest number of new incorporations on record, suggesting a deep cultural shift towards entrepreneurialism is underway. And with a workforce of over 15 million people and combined annual turnover of £1.8 trillion, it begs the question, why are the major banks building barriers to growth for such an important sector of the UK economy? 

SMEs accounted for 47% of all private sector turnover in the UK at the start of 2015, supporting theses businesses during uncertain times is crucial to not only their survival and growth, but also the UK economy’s success.

1 in 6 small businesses say they are 'very' concerned about managing cash flow effectively over the next 12 months and 46% report being hit by at least one recent cash flow setback with late/failed payments from customers (24%), weak sales (8%) and unexpected costs and charges (7%) the top three reasons cited.

If the UK's major banks look to pass on the hit from low interest rates to business customers, SMEs will increasingly look to alternative finance providers to help manage cash flow issues and realise ambitions.

Data reports that SMEs are using £76bn worth of alternative finance each year as banks continue to pull back from lending. With the average wait for payment now 72 days for the smallest businesses with turnover under £1m, it’s no surprise that business owners are concerned about encountering cash flow problems if banks begin to charge for deposits. 

Worth £3.2 billion, the alternative finance industry has almost doubled in size from £1.74 billion in 2014 and alternative lending to small businesses is now equivalent to 46% of the value of traditional loans and overdrafts, demonstrating a significant move away from bank lending to manage cash flow by SMEs.

Paul Haydock, CEO of DueCourse, a FinTech SME and invoice finance provider believes SMEs have the potential to achieve their ambitions despite the perceived negative climate: “Confidence and consistency are absolutely vital within the SME community right now. We will see a shakeout of businesses who are not wholly committed to UK SMEs.

“Conversely, there will be those who are prepared to take the long-term view. At DueCourse, maybe in contrast to others, we are actually accelerating the accessibility of funds through unpaid invoice advances that are available to our SME customers.

“There may be economic uncertainty, but in our view, well-found, stable SMEs shouldn’t be disadvantaged purely by wider sentiment. So we’re in the SME market to stay, because as an SME ourselves, we believe in ourselves, our community and in a bright future for our customers.

“By offering the half a million SMEs using cloud accountancy packages the opportunity to unlock cash tied up in unpaid invoices, DueCourse has the ability to be a positive change maker in these uncertain times.”