Do SMEs Have an Unfulfilled Wish to Borrow?

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

Previously we have examined the behaviour of the one in three of SMEs that don’t use or want external finance – the ‘permanent non-borrower’. This time we look at the 7% (one in 15) of SMEs that wanted finance but got stopped on the journey – what we define as the ‘would-be seekers’ of finance.

Data comes from the SME Finance Monitor, a large-scale research study established in 2011 to provide robust, reliable, and independent data on the issue – from the SME perspective. The next wave of the SME Finance Monitor is published in June 2013.

SMEs split into three groups for borrowing

Our analysis divides SMEs into three groups, based on what they say they did in the 12 months before they were interviewed in Q4 2012:

  • 21% of SMEs reported a borrowing ‘event’, such as applying for a new or renewed facility
  • 73% met the definition of a ‘happy non-seeker’ – they had not applied for any new or renewed finance, and also said that nothing had stopped them doing so
  • The smallest group, 7%, were ‘would-be seekers’ of finance – they had wanted to apply for a loan or overdraft but something had stopped them

‘Would-be seekers’ are more likely to be found amongst the smaller SMEs. Only 2% of large SMEs with 50-249 employees fit the category. ‘Would-be seekers’ are found almost equally among businesses already using external finance (8% are would-be seekers) and among those who do not currently use external finance (6%).

What else characterises ‘would-be seekers’? They are twice as likely as other SMEs to have put personal funds into their business in the past 12 months – 70% have done so, compared to 41% of SMEs overall – with most of them saying it was something they felt they had to do.

The barriers to loans or overdrafts

So the question is, if they needed finance, what kept them from applying for a loan or overdraft? Three quarters of ‘would-be seekers’ mentioned one of two key barriers to applying:

  1. Discouragement – the more common form of discouragement is indirect, where the SME assumed that the bank would say no, and therefore did not ask. Slightly less common was direct discouragement where the SME made informal enquiries at the bank about borrowing and felt put off
  2. The process of borrowing – the cost, hassle, time, and/or security requirements.

Other reasons mentioned by around one in 10 would-be seekers were that they did not want to borrow in the current economic climate or issues around the principle of borrowing (e.g., not wanting to lose control of the business).

What about borrowing plans for the coming three months?

2% of SMEs said they had a need for finance in the next three months but did not think they would apply. A further 19% of SMEs did not have an identified need for finance, but felt that if a need arose they would be unlikely to apply. When asked why not, half (50%) of these ‘future would-be seekers’ said it was because they were reluctant to borrow at present – either in the current economic climate generally, or due to their own business performance specifically.

Discouragement, a key reason why SMEs had not applied in the past, is less of a barrier to future borrowing, being mentioned by 17% of ‘future would-be seekers’. Almost all of this discouragement is indirect, with the SME assuming the bank will say no, and so not asking.


This analysis is based on the 5,000 interviews conducted for the SME Finance Monitor in Q4 2012.

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

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