Member Article

SMEs using less external finance

SME are using less external sources of finance, according to the latest SME Finance Monitor.

In Q3 of this year, 40% of SMEs reported using external finance, representing the lowest levels seen to date.

There was also decline in the use of “traditional bank lending”, as one in ten SMEs reported making an application for a new or renewed loan or overdraft over the year.

The research is based on the responses from 30,000 businesses, and looked predominantly at finance applications.

Of all applications and renewals, 71% resulted in a loan or overdraft facility, 5% in other funding, and 23% were declined.

Overdraft applications were seen to be more successful than loans, and smaller, newer businesses remained less likely to achieve their goal.

Fewer SMEs were planning to seek external finance in the next 12 months, and a third of those already planning to apply were confident the bank would agree.

Shiona Davies, Director at BDRC Continental, said: “There are clear signs that SMEs are under pressure, and that fewer of them are seeing external finance as an option for their business. Some SMEs feel discouraged from applying, and their perception is that access to finance is becoming more of a barrier. This is despite the fact that 71% of applications have been successful since we began the Monitor, although first time applicants continue to find it more difficult to access finance.

“Although the banks and Government are undertaking various initiatives to boost lending, awareness of these hasn’t increased over the past 12 months. This suggests that communication and awareness raising activities could help to encourage SMEs.”

As more firms were reluctant to take on additional borrowing, 44% of those interviewed had used personal funds from the owners or directors. 26% felt that had no choice in doing so.

Emma Roberts, CBI Head of Enterprise said: “These latest figures confirm that new finance applications are less likely to be successful than renewals, reflecting the low risk appetite amongst finance providers.

“But it is encouraging that 23% of firms said they would have been more likely to apply for finance if they had known about the National Loan Guarantees scheme. This suggests that the new Business Bank could really help inform SMEs of the financial support available, bringing all the Government funding schemes under one roof.”

This was posted in Bdaily's Members' News section by Tom Keighley .