Monitoring SME Access to Finance

Shiona Davies, Director of Financial and Business to Business Research at BDRC Continental, and author of the SME Finance MonitorThe eighth wave of the BDRC Continental quarterly SME Finance Monitor was published in May. The report investigates the availability of external finance for the UK’s small and medium-sized enterprises (SMEs), and is the largest and most frequent study of its kind in the UK, with overall findings now based on more than 40,000 interviews with SMEs.

The SME Finance Monitor allows us really to understand the key trends and themes around SME access to finance, and to highlight where these are changing over time. Whilst there are signs of SMEs retrenching in terms of their use of external finance and the increasing obstacle of the current economic climate for those wanting to seek finance, there are also some positives as awareness of the Funding for Lending Scheme continues to grow. The key headlines from the Q1 report are described below, and the full report can be found online at

Fewer SMEs are using external finance, and more now meet the definition of a ‘Permanent non-borrower’

  • 39% of SMEs were using any external finance such as a loan or overdraft in Q1 2013, the lowest level recorded by the Monitor to date and down from 50% in the equivalent quarter of 2012. Over the same time frame, use of ‘core’ banking products (loans, overdrafts and credit cards) has fallen from 40% to 32% of SMEs.
  • Based on their behaviour in the previous 12 months, three-quarters of SMEs (76%) met the definition of a ‘Happy non-seeker’ of external finance, the highest proportion to date. Indeed, 41% of all SMEs can be described as ‘Permanent non-borrowers’, SMEs that do not use external finance and show little inclination to do so in the future. The proportion of such businesses has increased steadily over time (from 30% in Q1 2012).

Most applicants for a new or renewed loan or overdraft are successful, but the ‘Perception gap’ still remains

  • 70% of all applications reported for new or renewed overdraft or loan facilities have been successful, and this has remained consistent over time
  • Applications for overdrafts are still more likely to be successful than applications for loans (YEQ1 2013, 71% of overdraft applications and 59% of loan applications succeeded)
  • Amongst those planning to apply in the next three months, 40% were confident that their bank would agree to their request, much lower than the actual success rates achieved. This ‘Perception gap’ has now been seen over several waves for SMEs planning to renew an existing facility as well as those seeking new funds.
  • It is also evident that lower success rates persist for applications from smaller (0-9 employees), younger SMEs, those with a worse than average external risk rating, and first time applicants (YEQ1 13, 38% of first time overdraft applicants and 41% of first time loan applicants were successful).

Looking ahead, the economic climate presents an increasing barrier to applying for finance in future – now mentioned by the equivalent of 12% of all SMEs

  • In Q1 2013, 19% of SMEs met the definition of a ‘Future would-be seeker’ who would like to apply for finance in the three months after interview but think it unlikely they will.
  • Asked about the barriers to applying, two thirds (63%) of these ‘Future would-be seekers’ said they were reluctant to borrow in the current economic climate, up from 50% in Q4, and the highest level seen to date. Within this category, more SMEs in Q1 said that it was the performance of their own business, rather than of the economy more generally, that was the issue (mentioned by 23% of ‘Future would-be seekers’, up from 13% in Q4).
  • This is the equivalent of 12% of all SMEs saying they were reluctant to apply for external finance because of the current economic climate.

Awareness of Funding for Lending has improved, but awareness of other initiatives is limited and unchanged

  • 27% of SMEs in Q1 2013 were aware of the Funding for Lending Scheme (FLS), up from 24% in Q4 2012, and the highest awareness of the bank and Government initiatives tested.
  • 18% of SMEs thought such schemes made it more likely they would apply for finance – the equivalent of around 820,000 SMEs.
  • Overall awareness of the range of Government and bank initiatives available remains unchanged in Q1, with 52% of SMEs aware of any of the initiatives tested. Awareness varies by size of enterprise, from 50% of 0 employee businesses to 70% of those with 50-249 employees, but has changed little over time.

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

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