The UK is the best place in Europe according to a new study by Ernst & Young. It could be even better if raising capital was easier. Invoice finance is key to overcoming this barrier.

While the UK has come out on top in the recent survey by the Ernst & Young Entrepreneurship Barometer, there is a major caveat attached to this ranking. Despite the benefits provided by a competitive tax system, a skilled workforce, pro-business regulation and dynamic financial markets, the report notes that entrepreneurs and SMEs continue to face challenges in raising capital.

According to the Bank of England, lending to small businesses contracted in 2012, while the Entrepreneurship Barometer report states that almost three quarters of UK entrepreneurs have found it difficult to access start-up funding and capital for maintaining cashflow. Younger entrepreneurs have found it even harder, with nearly 90% finding access to SME finance difficult.

The small business lending landscape is improving, but the momentum is being driven largely by the alternative finance sector and leading products such as invoice finance and peer-to-peer lending. Traditional lenders remain cautious, a position that has been underlined by Nationwide’s recent decision to defer its entry into the SME lending arena until 2016 at the earliest, and by the comparatively weak impact of the Funding for Lending scheme on the availability of small business credit.

If the UK is to maintain its position as the home of European entrepreneurial spirit, access to SME lending has to improve. At present, it is a small number of alternative finance products, led by invoice finance, that is providing the dynamism.

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