Creative enterprises often rely on informal funding and believe financiers do not understand their business fully, new research finds.

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Ambitions for growth among creative businesses are being held back by a lack of financing opportunities, new research finds.

According to research commissioned by the Creative Industries Council (CIC), creative organisations are hungry for different types of finance, but remain more dependent than the average small- or medium-sized enterprise (SME) on informal finance from family and friends.

The Access to Finance report is billed as the first time the finance needs of creative SMEs have been “contextualised and benchmarked in the wider SME community”.

“This report confirms what experience has taught those of us working day to day in support of creative business across the country – that businesses in our sector are undercapitalised,” commented Caroline Norbury, Chief Executive of Creative England and Chair of the Finance for Growth Group at CIC.

“Perhaps most powerfully, it demonstrates that creative businesses have something that no amount of support services can seek to instil – ambition.”

Finance gaps

Conducted by consultancy BDRC and supported by Creative England, the research aimed to provide new evidence relating to the challenges and opportunities that face creative businesses as they look to grow and develop their business. It benchmarked the views of the creative sector against the SME Financial Monitor, which interviews 18,000 SMEs each year for their opinions about access to finance.

It revealed that when creative businesses do receive finance, it’s often insufficient for their needs. Also, the amount required to achieve their growth ambitions may be undervalued. This has led to a belief that financiers fail to fully understand the nature of their businesses.

Given creative businesses’ reliance on informal sources of funding, the report raises questions about the impact of this on opportunities for individuals who have no personal wealth or contacts willing to invest funds.

Other findings include:

  • 73% of creative SMEs expected to grow in the next 12 months, compared to 53% of SMEs as a whole
  • Creative businesses had higher appetite for finance, but lower confidence that they will be successful than the average SME
  • 27% of creative businesses rely on an informal source of funding, compared to 9% of businesses generally
  • 80% of creative businesses delivered ‘innovation’ in the past 3 years, compared to 46% of SMEs overall.

More research is needed, say the authors, into creative businesses’ relationships with venture capital and angel investors; the structures creative SMEs have in place for international work; and the productivity profile of creative businesses compared to SMEs more generally.

Norbury added: “Industry, government and the financial sector need to work together better to make sure those ambitious businesses have the right skills to attract the right investment to support their ambitions for growth, and in doing so the UK’s ambitions for growth in creative clusters up and down the UK."

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Comments

This is a great article and I strongly agree that financiers fail to fully understand and this even extends to local government and any partners that are needed for big scale projects. In my experience even the 'social investment' schemes have board members who do not understand the business model arts and cultural organisations are based on. Culminating; as you say; to lack of investment or a watered down financial solution.