To What Extent do SMEs See Access to Finance as a Barrier to Their Business?

Shiona Davies, Director of Financial and Business to Business Research at BDRC Continental, and author of the SME Finance MonitorAccess to finance is a key issue for Small and Medium-sized Enterprises (SMEs) and a policy challenge for government and banks. The SME Finance Monitor provides a robust and reliable view from SMEs themselves on this topic.

A previous article showed that around one in three SMEs meet our definition of a “Permanent non-borrower”, a group of SMEs who seem firmly disinclined to use external finance. So to what extent do SMEs see access to finance as a barrier to their business?

The SME Finance Monitor reports on the significance of each of the six barriers for business in the next 12 months. In Q4 2012, the factor most likely to be rated a ‘major obstacle’ (a score of 8-10 out of 10) was “the current economic climate”. 31% of SMEs rated this as a major obstacle in Q4 2012. By contrast, 10% of all SMEs rated “access to external finance” as a major obstacle – with the full list for Q4 2012 being:

  • 31% current economic climate a major obstacle
  • 12% legislation and regulation
  • 11% cash flow and issues with late payment
  • 10% access to external finance
  • 6% availability of relevant advice
  • 3% staff related issues.

So which types of SMEs were more likely to see access to finance as an obstacle in Q4 2012? Once the “Permanent non-borrowers” described above are excluded, 14% of remaining SMEs (with at least some appetite for finance) rate access to finance as a major obstacle. Other types of SME more likely to rate it a major obstacle include:

  • Wholesale/Retail (15%) or Hotel & Restaurant (14%) sectors
  • Current users of external finance (14%)
  • Those who plan, or would like to, borrow in the next three months (21% rate access to finance as a major obstacle).

Over the five quarters that this issue has been tracked, the current economic climate has remained the key obstacle for one in three SMEs, and was the top barrier for different types of businesses. In Q4 2012, the most likely to rate it as such were those with one to nine employees (33%), a low external risk rating (37%), or businesses in the Wholesale/Retail (40%) or Hotel & Restaurant (39%) sectors. Those somewhat less likely to see the current economic climate as a major obstacle included bigger businesses with 10-249 employees (26%), a minimal external risk rating (27%), or in the Health (20%) or Agricultural (22%) sectors.

Another angle on how SMEs see the current economic climate is provided via BDRC Continental’s Business Opinion Omnibus which has been tracking SME optimism for a number of years. This shows that net optimism amongst SMEs has been relatively stable since Q3 2011, having plummeted during 2008, while net confidence in the economy generally has been both more volatile (plunging in both 2008 and 2010-11) and almost always at lower levels than SMEs’ optimism about their own prospects.

Economic optimism & trading prospects of UK SMEs from Q2 2007 to Q1 2013

Looking at recent data more closely, in Q4 2012 32% of SMEs said that they were “more pessimistic” about the economy than they had been in the previous three months (a similar proportion to that reporting the economic climate as a major obstacle above). By contrast, just 11% expected their own business activity to decline in the 12 months ahead, compared to 40% who expected activity to increase. The Business Opinion Omnibus data also provides a view for Q1 2013, as the UK wondered whether it was experiencing a “double dip” recession – this showed very similar levels of SME optimism about their own business, and a slight decline in optimism about the economy generally. Q1 2013 data for the SME Finance Monitor will be available at the end of May 2013.

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

Leave a Reply

Your email address will not be published. Required fields are marked *


You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>