Latest news from the ninth SME Finance Monitor
The ninth SME Finance Monitor report was published at the end of August 2013. The largest independent survey of its kind, it provides detailed information on the issue of access to finance for SMEs, both currently and over time.
The full report can be found at www.sme-finance-monitor.co.uk, but here are the key headlines that will be explored in more detail in future posts:
SMEs are using a wider range of external finance
In the second quarter of 2013 (Q2), 44% of SMEs reported using external finance, up from 39% in Q1 (the lowest level seen by the Monitor).
This uplift was not due to increased use of ‘core’ products (loans, overdrafts and credit cards); their usage remained flat at 33%. Instead, more use was made of other sources of finance such as leasing, invoice discounting, grants and funds from directors. The overall use of any of the other forms of finance measured increased from 15% in Q1 to 21% in Q2.
22% of SMEs were aware of ‘crowd funding’, up from 18% when this question was last asked in 2012, and increasing slightly with size of business. This includes 2% of all SMEs who said that they had applied for such funding.
More SMEs have grown, and expect to grow
44% of all SMEs reported that they had grown in the past 12 months. Reported growth has increased over time from 37% in Q4 2012.
Looking ahead to the next 12 months, 51% of SMEs in Q2 2013 expected to grow, up from 48% in Q1 and the highest proportion to date. Most expected this growth to occur in existing markets and there was little indication that those who do not currently export planned to achieve growth overseas.
The economy is somewhat less of a barrier than it has been
When asked to rate potential obstacles to running their business in the next 12 months, 28% of SMEs rated the current economic climate as a ‘major barrier’. This barrier is still well ahead of the other factors measured, but is at the lowest level seen to date and down from a peak of 37% in Q1 2012.
Appetite for finance remains unchanged and most SMEs are ‘happy non-seekers’ of finance
In the 12 months prior to interview, 19% of SMEs reported having had a borrowing event –this has changed relatively little over recent quarters. Most SMEs (76%) met the definition of a ‘Happy non-seeker’ of funds who had not applied and did not feel anything had stopped them doing so.
14% of SMEs planned to apply for new or renewed facilities in the next three months, also with little variation over time. Larger SMEs and those planning to grow had more of an appetite for finance, and a quarter of those with plans to apply saw access to finance as a potential barrier to their business. 67% of all SMEs were ‘Future happy non-seekers’ of finance based on their plans for the next three months.
Whilst the economy is less of a barrier overall, it remains the key barrier to those who would like to apply for finance in the next three months but think it unlikely they will do so.
The ‘perception gap’ around borrowing applications continues, with half of SMEs aware of any of the various initiatives that might help and support a borrowing application.
Confidence that their bank would agree to their request fell from 40% of future applicants in Q1 to 30% in Q2 due to lower confidence amongst smaller potential applicants (whose confidence has been more volatile over time).
Levels of confidence remain in contrast to actual success rates. The ‘perception gap’ for renewals was 38% confident about a future application against 91% of such applications actually being successful. For new facilities it was 25% confident against 50% of such applications being successful.
29% of SMEs in Q2 were aware of the Funding for Lending Scheme (FLS), and this has increased over time from 23%. 16% of all SMEs said that schemes like FLS made it more likely they would apply for finance, down from 20% when this was first asked in Q4 2012.
Whilst awareness of FLS has improved, awareness of most other initiatives, including the appeals process, is flat over time (awareness of appeals is currently 12% overall). 52% of SMEs were aware of any of the initiatives tested, ranging from 50% of those with 0 employees to 69% of those with 50-249 employees.
Shiona Davies is the Director of Financial and Business-to-Business Research at BDRC Continental and author of the SME Finance Monitor.