Latest news from the SME Finance Monitor

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

In a more optimistic atmosphere, there are few signs of any increasing appetite for external finance among small and medium businesses.

The latest SME Finance Monitor report was released at the end of February 2014, covering the period to the end of December 2013. The full report can be found at, with key highlights from the report below.

Positive signals from SMEs

The proportion of small and medium-sized enterprises (SMEs) rating the economic climate as a major barrier to their business has declined to its lowest level to date – just 21% now, down from a peak of 37% two years ago. There is good news too from larger SMEs, where businesses with 10-249 employees are more likely to be anticipating growth. Two thirds expected to grow in the next 12 months, compared with about half of all SMEs.

Four out of ten SMEs are ‘Permanent non-borrowers’

The number of SMEs (40%) not using finance and with no plans to do so matches the number who are using external finance (41%). Permanent non-borrowers are defined as SMEs that are not using external finance, have not applied for finance and do not have any plans to apply in the three months after interview.

What was stopping SMEs applying for finance?

It may come as a surprise, but very few SMEs felt that something had stopped them applying for finance they had wanted. Applications for new or renewed finance were stable but limited and at lower levels in 2013 than 2012.

  • 8% of SMEs had applied for a new or renewed loan or overdraft facility in the 12 months prior to Q4 2013. Levels of application were stable during 2013, but at a lower level than the year before. Overall, 17% of SMEs reported some form of borrowing ‘event’ in Q4 (including the automatic renewal of an overdraft), compared to 21% in the 12 months prior to Q4 2012.
  • There is little sign of a frustrated demand for finance, with a declining proportion of SMEs wanting to apply for finance but feeling that something had stopped them. 4% of SMEs met this definition of a ‘would-be seeker’ of finance in the 12 months to Q4 2013.

Most applications were successful

Renewals were twice as likely to be successful as applications for new money. Over time, first time applicants have become less likely to be successful.

  • Around seven out of ten of all loan and overdraft applications each quarter have resulted in a facility. Those renewing an existing facility were twice as likely to be successful (96%) as those applying for new funds (48%).
  • As in previous years, smaller, younger SMEs and those applying for the first time were less likely to be successful. Success rates for first time applicants in 2013 to date are lower than in previous years, with 60% ending the process with no facility (up from 51% in 2012).

SMEs should be more optimistic about the chances of borrowing success

Confidence that a future application would be successful is still much lower than current success rates would suggest. Almost all finance renewals (96%) were successful, against just 56% of applicants who were confident of success. The story is similar for new funds – 48% succeeded vs 29% who were confident.

  • 15% of SMEs planned to apply for new or renewed finance in the three months after interview. Appetite amongst larger SMEs with 10-249 employees was lower in 2013 than in 2012.
  • 41% of potential applicants in Q4 2013 were confident that their bank would agree to a future request, unchanged from Q3.

Awareness of support measures available to help SMEs has reached a plateau

SMEs remain more likely to be aware of Funding for Lending (FLS) than other initiatives, but over time fewer SMEs feel that it will encourage them to seek finance, with most (77%) saying they are not looking for finance.

  • 52% of SMEs were aware of any of the support initiatives tested.
  • FLS had the highest awareness of any individual scheme at 29%.
  • The proportion feeling that schemes such as FLS would encourage them to apply for finance declined during 2013. In Q4 2013, 14% of SMEs thought such schemes would provide an encouragement, down from 20% a year earlier.

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

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