Analyze Funding Sources, Growth Trends & Financial Challenges for Small Automotive Businesses. Evaluate capital strategies and market opportunities to support successful business setup in the UK.
The study explores the challenges faced by small automotive companies in the UK when arranging finance to establish their business. It discusses the background, rationale, significance, research aims, objectives, research questions, and the overall structure of the study.
Setting up the business is not an easy task for the companies because it requires significant investment to run the operation successfully and effectively within the competitive market. As part of the BMP6001 Dissertation Assessment, this study explores the challenges faced by small automotive companies in the UK when arranging finance. Students who struggle to connect theoretical frameworks with practical simulation outcomes can benefit from help in assignment writing to present their reflections clearly and accurately. Securing the finance can be considered as important step in the growth and development of overall business operation and process. Without arranging the finance it is impossible for the small companies to run the business operation in the market and build the position over competitors (Nguyen and Canh, 2021). In addition, securing the finance is challenging for the automotive small businesses within the UK due to incomplete or ineffective documentation, limited credit history, access to assets for collateral, risk of trade volatility and market cash flow gaps and invoice delays as well as business competitiveness and regulatory compliance. Not having complete and right documentation is considered as one of the common challenge that is face by automotive small businesses while securing or arranging finance for setting up business. This challenge can derail the application of the companies related to business finance which leads to slower the whole process.
Additionally, at the time of arranging the finance from the financial institutions, automotive companies of UK are also facing the challenge related to limited credit history. Before extending a line of credit and providing a loan, financial institutions are evaluate the history and credit score of companies. Having the limited proof of business competencies is crucial for small companies because it mean that the provider of finance is less likely to offer the required money. On the other hand, ensuring the regulatory compliance is another challenge that is face by small automotive companies while securing the finances for setting up the business operation. Not being aware of relevant regulatory compliance can be recognized as preventive element in getting admittance to the working capital that needs (Priyanka et al, 2023). Market challenges and volatility in the global trade cannot be always mitigate and may not be reflect the financial health and stability of the companies. It can be issue that is important for the small companies to mitigate at the time of applying for the finance needs. In the UK, the key aim of the automotive industry is to provide the wide range of services such as car parts, repairs, system services, equipment, electronic and testing manufacturing etc. In the GDP of the UK, automotive industry has contribution of more than 14.1 billion and providing the opportunity of employment to more than 7,81,800 workers (SMMT,2024).
The current study, as part of the BMP6001 Dissertation Assessment, is based on evaluating the challenges are facing by small automotive companies of UK while arranging the finance for setting up business. For setting and running business operation it is important for the small companies to have sufficient amount of working capital. Managing the finance is important for the organizations because it aids in generate money, organize operations, manage cash flows and outline long term goals and objectives which ultimately positively impacts on the overall operations (Gao, 2022). Additionally, thematic analysis will be utilised to shed light on the challenges face by small companies while arranging finance for setting up business.
The present study will assist in creating the awareness regarding the challenges face by the small automotive companies while arranging the finance for setting-up the business. This study will aids in improving the understanding of other companies in related to various sources from which they can arrange finance for setting up business. Further, this study will also illustrate the issues faced by small companies based on which competent strategies could be recommended as to mitigate all challenges.
Aim: The aim behind initiating current study is to identify the challenges faced in arranging finances for establishing small car parts businesses in UK.
Objectives:
The review examines the growth of small automotive enterprises, the funding sources available, and the challenges encountered in securing finance. It also highlights gaps in existing research and provides a critical foundation for understanding strategies to overcome financial barriers in the UK automotive sector.
Literature review is a part of academic writing that represents understanding and knowledge of academic literature on the particular topic that place in the context. Conducting the literature review is beneficial for researcher because it helps in providing complete information about the specific topic according to the perspectives of diverse authors (Lim et al, 2022). Literature review also helps in calculating the influence of latest information as well as securitizing the research gap and provides the information with relevancy and coherency. The current review is based on investigating the challenges face by small automotive companies while arranging finance for setting up business. It will also highlight the various funding sources that are available to small automotive companies.
6 Years | PhD
UK is largest automobile producer in the world. The automotive industry produces wide range of vehicles such as commercial, passenger cars, three-wheelers, two-wheelers, four-wheelers etc. The automotive industry has been significant in providing the rapid supply of components, raw materials and parts. In addition, small automotive companies are enjoying strong and reputed position in the heavy vehicles at the global level. As per the view of Luo et al, (2021), small companies are considered as essential part of UK’s automotive industry which manufactures several auto parts encompassing transmission and engine parts, exhaust system, steering and suspension elements and more. Over the time, the small automotive companies of the UK are introducing new and emerging technologies and processes in order to enhance the efficiency and quality of production (Agrawal et al, 2021). As a result, small companies are able to diversify the range of products and become more competitive within market.
As said by Chamberlain and Al-Majeed (2021), small automotive companies also help in creating more efficient and transparent supply chain for the better coordination among suppliers and producers. This has allowed for better planning of production and control over the costs. Small companies have also been instrumental in assisting automotive sector to reach more niche and newer markets. As a result, small organizations have leveraged their cost advantages in order to become more competitive within the international markets which allow them to enlarge their customer bases and increase profits as well as revenues (Focacci and Perez, 2022). Apart from this, for achieving sustainability, small companies in the UK automotive sector put all the efforts to curb the waste. As critically contended by Kamble et al, (2023) small companies are anticipate to come across opportunities for the modernization of product in new and less capital intensive niches of the automobile sector. Despite the challenge, the automotive sector of the UK regularly to see the potential for future growth and development from the zero emission vehicles and technological advancements.
The automotive growth trends are likely to sustain positive in the future. This sector push small companies for manufacturing zero emission vehicles which may results in rush in demand for electric vehicles (Babu et al, 2024). In the UK, small companies are doing their best in order to reduce the amount of waste and environmental footprints. For achieving the sustainability for protecting the environment and safeguard the health and well-being of the people, small automotive companies are emphasis on curbing automotive waste. For this, small automobile companies are investing in waste reduction equipment, finding closed-loop recycling solutions and doing proper inventory control. Apart from this, the UK market may see the higher growth rate (6%) in between now and 2028. The automotive industry plays a crucial role in the economy of the UK and it has 2% contribution to the GDP (Kelly, 2024). The automotive sector is contributing £93 billion turnover and £22 billion value added to the economy of the UK (SMMT, 2024).
Apart from this, the transformation towards the battery electric vehicle (BEV) production is playing a significant role in shaping the future success of automotive sector in the UK. Transformation towards the electric vehicles is not only technological evolution but an economic imperative that encourages the contribution of automotive sector towards economic output, jobs and global competitiveness. According to Oliver, J, (2024) automotive sector is considered as key contributor to the economy of the UK because it helps in supporting more than 5, 52,000 full time equivalent (FTE) jobs and generating £46.8 billion in Gross Value Added (GVA). This sector is also a key contributor in UK exports because only 21% of total vehicles are manufacturing at domestic level and the remaining is exporting.
Financing is required to start a business and raise it up to profitability. There are wide ranges of funding sources such as personal investment, venture capital, financial angels, crowd-funding etc., from which small automobile companies can raise to funds for starting the business. As per the view of Gutterman (2023), personal investment is considered as one of the effective source for the companies for arranging the capital. Using this source is beneficial for the small organizations because in this it is not require applying for loan and seeking investments. In addition, using of personal saving is beneficial for small companies because it helps in providing immediate admittance to capital without the approval of external. In addition, by using personal funds, entrepreneurs can manage full control over the decisions of business without any pressure of meeting external obligations and expectations (Azwari, Febriansyah and Jayanti, 2022). This autonomy can aids in promoting more flexible and creative approach to business development and build the sense of accountability and commitment in entrepreneurs. As critically argued by Apriliani et al, (2023) financial instability is one of the major drawbacks of using personal saving for setting the business operation.
Generally, entrepreneurs who use their savings in pursuit of their business goals and objectives may find themselves in difficult situation if the organization does not succeed according to plan. As critically contended by Nguyen and Canh (2021), if the small companies are investing their own money into their venture then they are more motivate to make sure its growth and success. It also helps in improving the creditability when seeking for loans and investment in future. On the other hand, loan and overdraft is another essential source from which small companies can obtain the funds in order to set up the business operation. Bank loan is considered as long-term mode of financial a business (Smith, 2024). Under a bank loan, the financial institutions are specifying their tenure and timing of interest rates and repayments. Taking the loan is beneficial for the small companies in compare to overdraft because it offers lower interest rates. As per the thought of Longo (2023), loan is considered as one of the effective source of finance for the small companies to start the business because it facilitates immediate capital, better control, nominal interest rates and personal wealth protection.
Start-up owners require to constant funds to scale the business and make sure the sustainability against the various competitors. Loans taken for start-up companies allow entrepreneurs to raise adequate capital with the help of hassle-free and quick process. On the critical note Stevenson et al, (2022) loans taken from financial institution and other, start-up companies can require to repay the principle amount with the interest through equal monthly instalments (EMI). If the loan is short term or has high amount of EMI then it create the financial burden for small companies to cover the liability towards the lender (Gao, 2022). Apart from this, venture capital is considered as one of the most attractive opportunity of funding when it comes to starting a new business operation. Venture capital is money that is putting into the new companies that can helps in achieving rapid growth and development. As per the view of Chamberlain and Al-Majeed, (2021) raising the finance from venture capital is beneficial for the small organizations because it helps in gaining business expertise, making valuable connections, raising additional capital and upgrading technology.
Venture capital assists new entrepreneurs to collect business expertise. Those who supply venture capital have massive experience to assist the owners in making decisions particularly financial management and human resource. As critically opposed by Focacci and Perez (2022), in many cases venture capital leads to reduction of ownership stake and give rise to a conflict of interest which eventually negatively influence on operation. .
Securing the finance for setting up the business is not an easy task for the small companies they experience wide range of challenges which leads to delay in process. At the time of arranging the finance, small companies are facing the challenges related to selecting source of fund, lack of investors trusts, incomplete documentation, limited credit history, access to assets for collateral, risk of market and trade volatility, ensuring regulatory compliance as well as cash flow gaps and invoice delays (Khan, 2022). Selecting the source of fund is considered as one of common challenge for the companies while raising the finance. Small companies are facing difficulty in managing a proper balance between debt and equity as well as creating the optimal structures of capital. According to Bollaert, Lopez-de-Silanes and Schwienbacher, (2021), lack of investors trust is another common challenge that is face by the small companies at the time of securing the funds from financial institutions or banks. Without strong trust and confidence, the financial institutions and other investors did not lend the money to small companies for starting the business operation.
As per the view of Hussain et al, (2021) incomplete or ineffective documentation is considered as one of the common issue that is facing by small companies at the time of raising the funds from financial institution and others. Sometimes, this issue derail the business finance application of the companies which cause entire process to be less and slower efficient. If the small companies are facing the challenges of cash flow gaps and limited admittance to working capital then it can disrupt the whole process of arranging finance. On the critical note it has been argued by Sahlman, (2022) limited credit history is another challenge that can face by the small automotive companies at the time of securing the finance for start-up. Before extending a line of credit and providing a loan, the financial institutions are evaluating the complete history and credit score of the business (Gerhart and Feng, 2021). If the organizations have limited proof of their competencies then the financial providers is less likely to provide funds to them for starting up the business. It has been critically said by Fan et al, (2021) before arranging the finance it is important for the organizations to build their credit score because it helps in creating a paper-trail of their financial practices as well as providing confidence to lenders to approve the application.
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Apart from this, generally, small companies are also facing the issue of risk of marker and trade volatility at the time of arranging the finance for setting up the business (Cunha, Meira and Orsato, 2021). Usually, in the global trade, market volatility and challenges cannot be always addressed and it may not directly reflect the health and financial stability of organizations. At the time of arranging the funds, it is important for the organizations to execute risk management strategies that they can retain as evidence of application. In addition to this, diversifying the presence of market and widening the income streams can helps in alleviating the uncertainties that intrinsic in the dynamics of trade and market. As critically argued by Umair and Dilanchiev (2022), cash flow gaps and invoice delays is another common challenge that is face by the small companies while arranging the funds for setting up the business operations. Finance lenders and providers are looking for reliable and proven revenue that is flowing into a business to give confidence that the loan can be repay.
For securing the funds from financial intuitions it is important for the small automotive companies to comply all the rules and regulations of the relevant legislations. Regulatory compliance is considered as preventing factor that helps the organizations in getting access to the working capital that need (Chen, Kumara and Sivakumar, 2021). For arranging the finance from banks or financial institution it is important for the small automotive companies of the UK to comply all the rules and regulations of the regulatory bodies such as Financial Conduct Authority (FCA), Financial Services and Markets Act (FSMA) and Bank of England (BOE). As per the view of Wu et al, (2022), business competitiveness is another challenge that is face by the small companies while arranging the finance for setting up the business operations. For taking the business loan, it is important for the companies to fill the certain forms of business finance. Nevertheless, overcrowded markers and highly competitive industries can be an unfortunate obstacle for small companies in accessing the finance.
Prior studies has been conducted on only identifying the process of setting up the business but not focusing on the various sources of funds and challenges face by the small companies while arranging the finance. But this current report will integrate the complete information about the sources which are use by small automotive companies to arrange the finance for setting up the business. In addition, this report will also evaluate the challenges of arranging the finance with their mitigating strategies. This study will helps in increasing the understanding of the small companies to use sources and ways to overcome the challenges which are face by them during securing finance form bank or other financial institutions.
Conclusion
In the end of literature review, it has been concluded that small automotive companies are rapidly growing within the competitive market. These companies are majorly emphasis on manufacturing electric vehicles in order to achieve sustainability and protect the environment. Personal investment, crowdfunding , venture capital, loan etc., are considered as significant sources of finance from which small automotive companies of the UK can raise the funds for starting the business. On the other hand, securing the finance is challenging for small companies because they are experiencing various challenges such as selecting sources of funds, lack of investors trust, limited credit history, incomplete documentation, risk of trade and market volatility.
The research methodology outlines the systematic approach adopted to investigate the challenges faced by small automotive companies in the UK while arranging finance. It explains the research type, approach, philosophy, data collection methods, sampling, analysis techniques, ethical considerations, and measures to ensure reliability and validity. The methodology provides a structured plan to achieve the research objectives and gather accurate, relevant insights.
Research methodology is the particular techniques or procedure utilized to select, identify, analyze, process informational about a topic. This is all about how a researcher anticipates carrying out their research; it is majorly systematic plan to resolve a research problem. The research methodology is like the plan for focus on research and helps the researcher to keep on track by limiting the research scope. This is a process by which the researcher can design the strategy so they can gain the objectives using the selected research instruments. Different factors need to be considered Methodology provides details to the approach of researcher to the research to make sure about the valid and reliability result to address the objectives and aims.
The research types refers to the ways in which the research needs to be conducted, are qualitative and quantitative. These are two types of options available to the research. Qualitative research aims to analyze and gather non numerical data in order to gain the understanding individual’s social reality. The research used to gain an understanding related to human experience, attitudes, intentions and behaviors etc, based on the interpretation and observation of people. This is an exploratory and unstructured technique which deals with the complex phenomena (Hillier et al, 2019). On the other hand, quantitative research is strategy which focuses on analysis and qualifying the collection of data. The common quantitative methods involve observations recorded and experiments as numbers and surveys with the close ended questions. This establishes the cause and statistical methods, as this result in precisely measured and accurate, the method is also termed as Empirical research. The research has been utilized the Qualitative method in the current research because this offered the objective insights from the data and gain reliable information from human experience. The major benefits of qualitative method are that this involves the samples sizes which are smaller than the different forms of research. The research helped the analyst to evaluate the attitudes and behaviors in depth to gain the effective understanding of their activities and thoughts to assess the hypothesis in depth manner.
The approaches of the research suggest for the deductive and inductive, the approach lies on the carried out investigation. The approaches which are carried out by the qualitative researcher are to be inductive. The inductive method is which the researcher gather and analyze the data to boost the hypotheses, concepts and theories based on the observation and patterns. The approach starts with indentifies patterns and data collection to form hypotheses and observations (Boateng and Poku, 2019). The key goal of inductive approach is to develop a theory within research.
On the contrary hand, the deductive approach is appropriate for the evaluating numerical information. The method effectively offer the broad perspective on the research issues which aids in assessing the new theories. Moreover the approach begins with the observing the phenomena related to which the theories has been made which results in achieving the in depth data. This approach utilizes the top down method in which the researcher stars with the general ideas and after that tests it via specific observation. The researcher has been used the inductive research to assess the challenges and difficulty in setting the car parts (Nolden et al 2020). The method offered the broader view on the issues within research which aids in evaluating new theories. This permits analyst to study new concepts and ideas on the bases on gathered data. The method makes new theories and concepts which deductive approach not able to offer. This offer helps the analyst to understand the depth understanding of the new ideas and patterns with the complex phenomena.
This denotes to the belief and faith of the people which aligns with the research area, interpretivism and positivism are two different types of philosophies. interpretivism is majorly based on the norms, beliefs and values; on the other hand, this relies on the reason and measurement. This is a research method and philosophical position that analyses events within society based on the major value system (Reis et al, 2021). It is based on the assumption that reality is socially constructed, multiple and subjective.
However, Positivism relies on the hypothetic deductive method to focus on the hypotheses which are often stated quantitatively. In this the functional relationship can be derived among explanatory and casual factors. The analyst has been used the interpretivism to emphasize over the social construction which help in better understanding related to issue. The method develops the open communication rather than the fixed set of the questions. This philosophy offered help to analyst to assess the information with the high validity through emphasizing upon the meaning and personal motivation. It offers the complicated research which can be studies with the major studies. Moreover, it provides the investigator with the immeasurable accounts of belief and feelings as the personality traits.
The data collection explicated as the process of gather information; primary and secondary are two methods via which information can be gathered. The primary data gathering is related to first-hand information for a specific research purpose. This is unprocessed and original, offering new insights related to the researcher’s objectives and questions as well. The common methods of gathering data from the primary resources involve the experiments, interviews, surveys and observations (Boone et al, 2019). Each of this is permitting the researcher to gather targeted and specific information.
On the other hand, Secondary data refers to the data that was gathered by someone else for the different purpose and used by the analyst for a new study. This is mainly based on the reviewing books and journals and according information can be gathered from the secondary sources. In order to determine the challenges, the researcher has been utilized secondary methods (Herbes et al, 2021). The secondary data helps in avoid the duplicating work which already done. This can save expense and time at the same period which is beneficial for researcher. This already collected so the researcher doesn’t have to devote other resources, energy, time and money to this phase of research than the primary data. In this no particular editing and precaution is needed while the primary data is gathered with the definite purpose.
Sampling
For gathering the data from the secondary sources Google scholar has been utilized. The researcher has used the journals, articles and books. The all the data before 2020 has been taken because of the high risk related to the unrealistic information.
This is about the ways under which the data has been analyzed such as thematic and statistical, these two types of methods are available for the researcher. Thematic is mainly suitable for the analyzing the qualitative data. This is applied to texts, like as transcripts and interviews. The researcher effectively analyses the data to identify the common themes and patterns. On the different hand, statistical analysis is interpretation and collection of data in order to uncover the major trends and patterns (Henry and Lloyd, 2019). This can be utilizes within situations such as designing studies and surveys, statistical modeling, gathering research interpretations.
Within the research the analyst has been used the thematic analysis which is utilize to achieve the deep understanding of the major objectives using the patterns and themes. The method offers the flexibility which facilitates the analyst to assess the different theories which can implement via the processes (Nanda and Banerjee, 2021). The thematic data analysis has offered help to the researchers to effectively interpret the themes via using the secondary data sources. This is smoothes the inductive growth of the patterns and themes from the information. The thematic analysis is implacable to research questions which go beyond the experiences of the humans. This is effective and usually useful at the time of evaluating the large sets of data.
The researcher has been focus on adhering to all ethics concept of consent to be performed and awareness related to research context has been developed and afterwards, responses from the candidates has taken. Moreover, confidentiality of the participants has been maintained and no disclosure of their personal informational has done. When collecting the secondary data the analyst has effectively selected by making sure that the information is reliable and related as well to the research objectives (Lüdeke‐Freund et al, 2019). The analyst has been critical and analytical in analyzing and recognizing the data to decrease the limitation. The research design has developed to resolve the research questions via managing the reliability and validity. Before agreeing to the research of respondents, the researcher offered participant a list of objectives for focusing on the research.
Reliability refers to the different methods which are utilized to assess the data and it is consistency of the variables which is developed in similar situations. The validity are related to the measurement accuracy. The reliability of research assists in assessing the methods of research which provides the same outcomes of the data various times (Tunio et al, 2021). The reliability and validity are the major elements in the study. Hence, for the study valid and latest articles have been utilized. No alternations are being done in the study and by using keywords the study has been completed. The researcher has made sure that the result obtained from the research methodology need to be trusted. The overall research has made sure to have the valid and reliable measurements for the accurate and valid analysis as well.
Lack of effective budget and time are the key issues which put impact on the effectiveness of the research. For reducing this, the secondary research has been used as this time and cost effective as well of gathering the data. Due to the different financial constraints updated tools has been utilised for analysing the data. However, the thematic approach offers the efficient outcome. The different themes have been formed by focusing to articles which aid within achieving the accurate information related to the problem.
Conclusion
Conclusively, it states that the research methodology offered help in understanding the significance of the different methods which helped in carrying the research. The analyst has utilized the qualitative methods to assess the understanding and knowledge of different variables in details. Through focusing on the secondary data collection the analyst has provided the effective understanding of the all objectives.
The findings and analysis section evaluates the data collected to understand the financial challenges faced by small automotive companies in the UK. It examines the growth of SMEs within the automotive industry, explores the sources of funding available, and identifies key issues in accessing finance. The analysis highlights patterns, trends, and implications for small businesses aiming to establish and sustain operations in a competitive market.
Data analysis is defined as practice of evaluating the sets of data in order to draw conclusions about the information they contain. It includes organizing, cleaning and studying the data that helps in understanding the trends and patterns (Popenoe et al, 2021). In the context of research, data analysis is important because it helps in unlocking the important values by making certain information and facts are recognizable and transparent or not. This study will be based on analysing of information and data which was gathered in relation to challenges face by small companies while securing the finance for setting the business.
SME’s are growing rapidly within automotive industry
Securing the finance is challenging for the small companies because they are experience wide range of issues that directly affects their process of start the business operations. Set up the business in the automotive sector of UK is beneficial for the companies because it is rapidly growing and has major contribution towards the economic growth and development. The automotive sector of UK is built on firm foundations with the cutting edge engineering and long heritage of innovation. It has been determined that, automotive sector of the UK is rapidly growing and it is considered as pivotal part of its economy (Wise, Yeganegi and Laplume, 2022). This sector is integral to support the delivery of agendas for advancing global Britain, levelling up , plan for growth and development as well as net zero. The automotive sector accounts for 12% exports of goods with more than 140 countries importing the vehicles which are producing in the UK. Additionally, the automotive sector of the UK is continuously growing and it provides the opportunities to the people of employment which positively impacts on their career growth and advancement. It has been determined that, employment in the automotive sector of the UK was continuously increased from 2013. In 2023, British automotive industry employed more than 8, 13,000 people. This demonstrates an increase of around 4.2% as compared to previous year (Statista Research Department, 2024) (Appendix).
In addition, doing the business in the automotive sector of the UK is beneficial for small companies because it helps in gain the success and develops the strong position in the market. It has been found that, more than 25 manufacturers build higher than 70 models of vehicles in the UK which is supported by 2500 component providers and skilled engineers. Setting the small business in automotive sector aids in gaining the high amount of revenue and develop brand reputation in the competitive market (Ang, Chia and Saghafian, 2022). It has been depicted that, small companies are drastically growing in the automotive sector by emphasis on manufacturing electric vehicles to achieve sustainability. For the literature review it has been determined that, UK automotive sector is supporting more than 5, 52,000 FTE jobs and generating £46.8 billion GVA. On the other hand, according to SMMT, UK is considered as one of leading leader who comments on the figures of new car registration (SMMT, 2024).
Doing business in automotive sector is valuable for the small organizations because it helps in gain the success and develop their bright future over competitors. It has been evaluated that, in the era of global automotive groups, automobile sector has made a profitable transition. For the small companies, it is considered as significant manufacturing venue for delivering the vehicles to whole nation. In the automotive sector, the small companies have an immense growth because the innovations are shaping their future (Camilleri and Bresciani, 2022). In past, UK has move slower than as compare to other countries in relation to embracing game-changing innovations like full self-driving technologies which is also called as Connected and Automated Mobility (CAM) vehicles. But after this, the parliament of UK is creating the framework for CAM vehicles for protecting the environment and safeguarding the health and well-being of the people.
For starting the business into new markets to launch the new products it is important for the companies to have the right and sufficient funds. Having the enough funds helps in fulfil all the needs and requirements of the business that directly impacts their success (Bessen et al, 2022). In case, small companies are starting the business operation into the new markets then it is crucial for them to have funds that helps in increase production and enlarge distribution. Finance can be considered as one of the effective option that helps funds the added expenses which allows the companies to enter into the new markets.
From the literature review it has been determined that, venture capital, personal investment, crowdfunding, loan etc., are considered as major source of finance from which small automotive companies can raise funds for setting up the business. Venture capital is considered as one of the effective source from which start-up companies can operate and run their business successfully within the competitive market. Typically, venture capitalist are investing in the start-up with the potential of high growth and looking for a significant return on their investments (Berger and Hottenrott, 2021). Adoption of this finance source is beneficial for the small automotive companies because it aids in providing admittance to large amount of capital and effective industry connection. But, in many cases raising the funds through venture capital is challenging for the organizations because it reduce ownership stake and increases the chances of arising conflicts of interest. Adoption of this source of finance can be useful for the organizations because it helps in building networking opportunities, increase visibility and emphasis on long-term goals and objectives.
On the other hand, it has been found that personal investment is another funding source through which small automotive companies can raise the finance for setting up the business. Adoption of this source of finance can be beneficial for the small automotive companies in order to start the business because it helps in maintaining the control over funs and eliminating the external obligations. This source helps in exhibiting the commitment of the owner towards the business and attracting more investors (Xiao and Tao, 2021). It has been analysed that, in personal investment the owners are not want collateral to lend the money to the companies. Adoption of this finance source can be beneficial for small automotive organizations because in this there is no requirement of paperwork as well as not require paying back to the owner on time. With the benefits, the companies can also face the challenge of financial stability while using personal investment for setting up the business.
Using of own money to start the business is beneficial for the organizations because it allows them to have power of decision-making and complete ownership that helps in generating revenue. Additionally, personal investment helps in providing flexibility to the companies towards their financial plans according to their goals and needs (Cunha, Meira and Orsato, 2021). Generally, adoption of this source can be useful for small automotive companies to stray the business operation within the UK because it provides the freedom to prioritize the business growth and effective allocation of the resources.
Apart from this, to set-up the business at initial level the small companies are also raising the funds through loan. It is amount of money which can be raise from bank or any other financial institutions for doing the business. Adoption of this finance source will be useful for small automotive companies because it aids in borrowing large amount and not require to be paid back for fixed time period. Additionally, this source of finance can be useful for the organizations because loans have low interest of rates as compare to bank overdrafts. On the other hand from the literature review it has been evaluated that, if the organizations are taking the loan from bank or other financial institutions then they need to pay principle amount with the equal interest in the limited period of time (Cumming et al, 2023). It has been analysed that, availing the loan from bank and other financial institutions are beneficial for the small automotive companies because it aids in avoiding immediate capital, facilitate better control and charge nominal interest rates. Loans help entrepreneurs of start-up to boost the capital with the help of hassle-free and quick process.
In the dynamic world of start-ups, arranging adequate funding is lifeline because it determines the success or failure of the organization. Raising the funds for starting the new business is challenging for the organization because they have to comply various formalities which delays overall process. At the time of securing the finance, small companies are facing the various challenges such as ineffective documentation, choosing source of finance, limited credit history, risk of market and trade volatility, cash flow gaps and invoice delays as well as ensuring regulatory complaints (Berger and Hottenrott, 2021). Form the literature review it has been evaluated that, incomplete documentation or lack of track record is considered as one the critical issue that is face by the small automobile organizations at the time of securing the funds for setting the business. The finance providers or lenders are looking for market traction, past success and progress in the customer acquisition and product development.
For arranging the finance it is important for start-up companies to maintain records of all documents which help easy accessibility of finance. It has been evaluated that, limited credit history is another common issue that is face by small automotive companies while arranging the finance for starting the business operation (Fiet, 2022). Additionally, having poor credit history is making challenging for the small companies in order to securing financing, developing relationships with vendors and suppliers as well as obtains favourable terms of credit lines and loans. This challenge can also limit the capability of the organizations to grow, expand and compete in the marketplace. Having the strong credit history is beneficial for the small companies because it helps in developing trust and creditability with the potential customers and partners.
On the other hand, risk of trade and market volatility is another challenge that is face by the small automotive companies at the time of arranging the finance. At the time of arranging the finance from banks and other financial institutions it is important for borrowers i.e. small automotive companies to implement the risk management strategies. These can retain as an evidence of application that helps in easily availing the finance for setting up the business operation in successful and effective manner (Gafni, Hudon and Périlleux, 2021). Another common challenge is invoice delays and cash flow gaps that is face by the small companies at the time of arranging the finance for the start-up of business. High overhead and fixed cost is considered as one of the common problem for start-up companies that hinder the small companies to arrange the funds. For the growth and success as well as gain competitive advantage over competitors, many entrepreneurs are expecting a high volume of sales and feel it essential to develop an infrastructure to support their forecast. From the literature review it has been analysed that, every financial provider are checking the competencies of the companies of repaying the loan or not while providing the finance.
Apart from this, regulatory compliance is another challenge that is face by the small companies during availing of funds. Understanding the financial regulations and tax obligations are important for the small automotive companies of the UK. Start-ups need to follow all the rules and regulations of federal financial regulations such as FCA, BOE and FSMA during accessibility of the finance from banks and other financial institutions. Along with this, effective practices of financial management such as regular audits and accurate bookkeeping are necessary in order to maintain the financial health and focus on growth and development (Huynh and Dang, 2021). Business competitiveness is another common issue that is face by the small automotive companies at the time of arranging of arranging the finance for setting up the business. In today’s environment, the number of start-ups are continues grow and develop so the competition for investor has strengthen. To gain the competitive advantage and differentiates their start-ups in the crowded market, entrepreneurs are require to work harder.
For securing the finance, it is important for small automotive companies to adopt scalable business model and develop strong and capable team for executing the mission and vision. For securing the loan from banks and other financial institutions, it is important for the organizations to several forms of business (Stefanelli, Ferilli and Boscia, 2022). Generally, the overcrowded markets are highly competitive so it creates the challenges for the small companies in accessing the finance for setting up the business in that market.
Recommendations
Following recommendations are mentioned below for SMEs to adopt competent strategies for effectively arranging finances.
Conclusion
In the end of data analysis it has been summarized that, starting the business within UK’s automotive sector is beneficial for small companies because it is rapidly growing continuously. For the starting and developing the business operation it is important for the companies to have sufficient amount or funds. In addition, personal investment, venture capital, loan, crowdfunding etc., are crucial sources from which small automotive companies can raise the funds. On the other hand, raising the funds from banks and financial institutions are not an easy task because they experience various challenges such as ineffective documentation, lack of credit history, regulatory compliance etc.
References
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