As SMEs look at how they will finance their businesses this year, new research from Nucleus Commercial Finance finds that nearly four in 10 (39%) of SMEs plan on investing over a third (35%) of their cash reserves into their business. 

The majority (91%) of SMEs have cash reserves, with the average SME holding £39,723 which they have set aside to finance their business for a time of crisis or cash shortage. However, the size of cash reserves is dependent on the size of the business, rising to £61,202 among medium-sized businesses (50-249 employees) and dropping to £9,646 among sole traders.

According to the research, cash reserves is the leading way SMEs will finance their businesses this year, despite the various financing options available. Other financing options SMEs are using include:

• A cash loan from the bank - 22%

• Personal savings - 21%

• Cash flow finance products - 19%

• Property backed loan - 16%

When it comes to financing their businesses, SMEs like to plan ahead with almost half (46%) having started preparing for 2022 in 2021, and one in five (22%) are already planning now for the year ahead. However, 13% report that they do not plan ahead as their business is run on a month-by-month basis, and 5% make no future plans at all. 

Chirag Shah, CEO of Nucleus Commercial Finance, comments: “It is encouraging to see that on the whole businesses have significant cash reserves to invest for their futures. Despite the ongoing challenges of the pandemic and ongoing supply chains, it is positive to be planning ahead.  However, there is still a way to go in understanding the number of funding options available. Governments and industries need to work together to highlight what options are available and the benefits of using external finance can help businesses invest for the future.