Latest News from the SME Finance Monitor

Shiona Davies, BDRC Continental

The latest SME Finance Monitor report, based on interviews up to the end of December 2012, was published on the 7th of March. It’s not possible to do justice to the wealth of data it contains in the space available (, but here are some key headlines:

The blurring of business and personal finance

54% of SMEs interviewed in Q4 have some personal element within their business finance. This is more common for those with 0 employees (59%), declining with size to 14% of those with 50-249 employees. “Personal” in this context includes using a personal bank account, having or applying for a facility in a personal name or, most commonly, an injection of personal funds.

40% of SMES interviewed in Q4 2012 reported receiving an injection of funds in the 12 months prior to interview. 16% said they had chosen to do so, in order to help the business develop, while 24% of SMEs said that it was something they felt that they had to do. Funds were put in as a mix of long and short term investments, with most involving £5,000 or less (60%)

Confidence lags behind success rates when applying for finance

Since the SME Finance Monitor started we have recorded details of more than 6,000 applications for new or renewed loan or overdraft funding. Across all these applications, 71% resulted in the SME having a facility, 5% took alternative finance and 25% have no facility, and the results have remained pretty stable over time.

By comparison, amongst the 14% of SMEs planning to apply for new/renewed finance in the three months after Q4 2012, 43% expected their bank to agree to their request. Whilst this is an increase on confidence levels in Q3 (where 33% expected to be successful) it remains below the headline success rate of 71% quoted above.

First time applicants continue to struggle

We continue to see clear differences in outcomes for different types of SME applying for new or renewed funding, by size and external risk rating, and also by the sort of borrowing they are looking for:

  • 8% of those applying to renew an existing loan or overdraft facility were unsuccessful.
  • This compares to 21% who were applying for a new facility, but not their first, who were unsuccessful.
  • Meanwhile, 51% of first time applicants ended the process with no facility.

Funding for Lending makes an impact

In Q4 2012, 23% of SMEs were aware of the Funding for Lending scheme. Whilst a minority, this level of awareness is higher than other initiatives that have been around for longer (awareness of the appeals process when an application is declined is 10%).

20% of all SMEs thought such a scheme would make it more likely that they would apply for external funding – the equivalent of some 900,000 SMEs – with appetite seen across all size bands and risk ratings.

That said, we continue to see many SMEs reporting little appetite for external finance (while it is currently used by 41% of all SMEs). 72% of SMEs in Q4 reported that schemes like Funding for Lending made no difference to them as they do not want to apply for external funding.

Shiona Davies, Director of Financial and Business to Business Research at BDRC Continental, and author of the SME Finance Monitor

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