Failing to lend or not wanting to borrow? - Paris Smith Skip to content

29th May 2014

Failing to lend or not wanting to borrow?


29th May 2014

Failing to lend or not wanting to borrow?

pound signAccording to the latest SME Finance Monitor (an independent report produced by BDRC Continental), which looked at the demand for and availability of finance for SMEs in the UK, only a third of Britain’s small businesses have turned to their banks for financing in the past quarter, the lowest level on record. This is despite the fact that the proportion of SMEs making a profit remained slightly higher than in previous quarters and the efforts of the coalition Government to boost bank lending to SMEs.

The report highlighted that only 33{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48} of small firms reported using external finance, which includes bank loans, overdrafts and credit cards in the first quarter. The remainder of those surveyed instead use trade credit (27{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48}) and personal funds (30{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48}). BDRC said it was the lowest level for 12 quarters.

What is also interesting is that 48{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48} of SMEs now class themselves as “permanent non-borrowers”, i.e. they do not ever see themselves utilising any external finance options, and that this is up from 41{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48} last year and 30{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48} in 2012.

Whilst some of the changes can be attributed to an improving economy and SMEs having greater cash reserves, it is probably also true that the figures show an aversion to relying on banks and other financial institutions and continuing mistrust. The obvious conclusion to draw is that this may lead to an impairment of business growth, as a result of SMEs failing to utilise borrowing in order to grow their businesses.

The survey also identifies that one of the main barriers preventing SMEs from applying is that they either felt that they had been “discouraged” (however informally) or assumed that they would be turned down and therefore did not bother applying. However, the survey also showed that many facilities were in place within two weeks of being agreed and that 9 out 10 of the people surveyed said the funds were available in good time.

In fact, the two main barriers to running their businesses which were identified by SMEs under the survey were: (1) the economic climate; and (2) legislation and regulation and not access to finance.

The Bank of England is due to release its latest Funding for Lending Scheme data today and it will be interesting to see whether the figures show that the banks have been able to use the Scheme to boost their lending levels and, if they have, by how much?

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