Willingness to borrow falls amongst SMEs

Only 15% of SMEs interviewed in the third quarter of 2013 reported a borrowing event of any kind in the 12 months prior to interview, according to the SME Finance Monitor by BDRC Continental (the UK’s largest independent market research consultancy). The result represents a decline from a peak of 25% in the first quarter of 2012. Some 78% of SMEs report that they had neither applied, nor wanted to apply, for loans or overdrafts in the previous 12 months, the highest figure to date.

Applications for new or renewed loans and overdrafts are also at their lowest level to date at 7% of all SMEs, down from 12% in the first quarter of 2012. Some 7 per cent of the companies surveyed meet the definition of a ‘would-be seeker’ of finance. Such SMEs indicated that they would have liked to apply for a loan or overdraft but felt that something stopped them.

Almost 40% of responding SMEs now report an injection of personal funds into the business in the previous 12 months, continuing a downward trend seen since the third quarter of 2012, when 46% had reported an injection of such funds. There are signs of increased optimism about the future, especially among SMEs with employees, but this has not translated into future appetite for finance which remains muted. The BRDC report also records that some 47% of SMEs plan to grow in the next 12 months, slightly lower than the 51% reported in the second quarter of this year.

Shiona Davies, director at BDRC Continental stated that the study’s 50,000 interviews provides for a comprehensive understanding of the challenges faced by SMEs. She comes to the conclusion that the latest BRDC Finance Monitor findings show that SMEs with employees are more optimistic about the future, but that this is not shared to the same extent by the SMEs with no employees, who make up the majority of the market. She added:

‘we are not currently seeing evidence that this increased confidence is driving an appetite for external finance, even amongst those SMEs planning to grow.’

It seems that despite moves made by the Government to encourage banks to loan more money to SMEs, such an initiative to stimulate growth in our economy, might lack success if many businesses themselves seem less than willing to even seek such funding. Are we in a situation where recent past bad experiences within lending relationships between banks and SMEs, now cause many small businesses to try hard not to go there again?

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