Demand v. Supply Side Issues in SME Finance – Some Evidence to Consider

SME Finance Monitor, Q3 2013 and the supply side issues in SME financeThe role of bank finance and SMEs’ access to funding has returned to the media spotlight recently. The 10th SME Finance Monitor, an independent report on access to finance from BDRC Continental, was published in December 2013.

This independent and impartial report separates the truth from the myths on access to finance:

Few SMEs want or need to borrow

Most SMEs had no interest in applying for finance. The highest proportion to date (78%) met the definition of a ‘Happy non-seeker’ of finance (those had not sought new or renewed loans/overdrafts, nor felt anything had stopped them doing so). Furthermore, 40% of all SMEs met the more stringent definition of a ‘Permanent non-borrower’ (those not using or wishing to use external finance currently, in the past five years or with plans to in the next three months).

Only 15% of SMEs had a borrowing ‘event’ in the last year, fewer than previously recorded.

Smaller businesses are more likely to be put off

Only a small group (7%) had wanted to apply for finance but felt something had stopped them – typically this was either the process of borrowing (time, hassle, expense) or believing the bank would not lend to them. Businesses with under ten employees were more likely to be in this group of ‘Would-be-seekers’ of finance.

It’s easier than you think!

The majority of applications are successful. Two thirds of applications made in the 18 months to Q3 2013 resulted in a facility. These success rates remain higher than the confidence expressed by SMEs who are planning to apply for facilities where only 37% are confident the bank will say yes. The question is why are they so pessimistic?

Success rates do vary by the type of application and applicant

Renewals remain more likely to be agreed than applications for new funding. Most renewal applications were successful (94%), whilst just under half of new funding applications were successful (46%).

Similarly, first time applicants remain less likely to be successful. Among those who have borrowed before, 67% of applications for new money were successful. Amongst first time applicants the figure was 30%. There is evidence that, over time, first time applicants are becoming less likely to be successful (37% of such applicants in 2011 were successful).

The economic climate, not access to finance, is the No. 1 obstacle to business

10% of SMEs rate access to finance as a major obstacle for their business, compared to 26% who see the current economic climate as such a barrier. However, as the majority of SMEs appear to have little interest in borrowing, it is relevant to look at the views of SMEs with any appetite for finance in the three months ahead. Amongst this group, 25% rated access to finance as a major obstacle, up slightly from 23% in 2012 – however it is still less of an obstacle to them than the current economic climate (38%).


Demand v. Supply Side Issues in SME Finance was written by Shiona Davies who is the Director of Financial and Business-to-Business Research at BDRC Continental and author of the SME Finance Monitor.

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