The importance of adopting of digital technology needs little restating – it’s linked to development in a range of key areas. However, investment from small firms isn’t what it should be. What’s holding them back and what’s the solution?

What digital transformation means to SMEs and what are the barriers?

The recent publication of a white paper on digital transformation by Made Smarter, a government-backed body to provide support in the area, has put SME sector struggles with the switch to digital technology in the news. While the white paper is aimed at manufacturers, the issues that it raises are relevant across the small business spectrum.

The scope of digital transformation is significant. It means different things to different firms. For example, the use of AI and related technology in manufacturing and other operations is a prominent issue, while digitalisation is also linked to developing sustainability practices (with decarbonisation a major focus) and stronger cyber-security protection (with cyber-criminals increasingly targeting more vulnerable smaller firms).

These are big-ticket development areas and small firms are aware of the benefits of digital technology, so why the hesitancy? Made Smarter has identified both a lack of confidence in technology and digital skills and a lack of resources as key barriers to greater adoption. As such, the new white paper is focused on helping firms overcome this barrier.

The pinpointing of skills and resources is telling. Training and investment in software and hardware is clearly part of the solution. But such steps come with a significant price tag and at the moment, finding the money is very challenging for small businesses.

Funding digital transformation and how alternative lenders can help

Given the prolonged pressure on cash flow that small businesses have had to manage, it is hardly surprising that they are proving reluctant to green light sizeable investment in digital technology, despite the potential on offer.

Let’s not forget that for all the talk of upturn in economic conditions, this progress is proving very slow, and the small businesses sector remains under incredible pressure. However, at the same time, getting left behind carries sizeable risk.

So, how can small businesses fund investment in digital technology? Alternative finance can help.

Services such as invoice finance, asset finance and peer-to-peer lending are proving a vital source of capital for small businesses in the current funding climate (with 65% more SMEs experiencing difficulty in accessing finance from high-street banks).These alternative finance facilities, which offer a more easily accessible, affordable and personalised approach to lending, are helping small businesses survive and target recovery, stability and growth.

This profile has helped cement the reputation of alternative finance in the business sector. Notably, the new Growth Guarantee Scheme will provide a wide range of finance facilities to smaller firms, including asset finance, invoice finance and asset-based lending. This is further proof that alternative lenders are increasing filling the small business funding gap.

Small firm finance options for digital technology investment

It is something of a catch-22 situation for small businesses: investing in digital transformation is challenging in the current climate, but failing to spend comes with notable risks. Firms have to find a way and this is why it is important that they are aware of all the finance options available to them, including the services of alternative lenders.

To find out more about A&T Business Associates services, contact Tony Hedger on 01903 602211 or tony.hedger@atbusinessassociates.co.uk.