By Daniel Hunter

BDRC Continental has published the latest wave of their SME Finance Monitor, which investigates the availability of finance for the UK’s small and medium-sized enterprises (SMEs).

The largest and most frequent study of its kind in the UK, the research is commissioned by the Business Finance Taskforce and is produced independently under the governance of an external Chairman and a Steering Group. This fourth wave of the research brings a full 12 month picture to the state of the UK’s SMEs and their financing situation.

Slightly more SMEs in Q1 2012 reported having sought new or renewed loans or overdrafts in the previous 12 months (12% in Q1 2012 up from 9% in Q4 2011). Most SMEs that applied for finance were successful, with overdraft success rates remaining higher than for loans. 79% of applicants for new/renewed overdraft facilities were successful (this equates to 6% of all SMEs).

16% of overdraft applicants ended up with no overdraft (this equates to 1% of all SMEs). 59% of loan applicants succeeded (this equates to 2% of all SMEs) and 33% ended up with no loan facility (this also equates to 1% of all SMEs). Analysis by date of application shows that success rates for overdraft applications have improved slightly over time* but no such pattern is discernible for loans.

Analysis of 12 months of data, combining loan and overdraft applications, shows that to date 90% of renewal applications have been successful, compared to a 59% success rate for new or increased facilities. The report reveals some of the key factors that help and hinder success rates when applying for new or increased facilities (once size and external risk rating have been taken into account).

For instance, recently established businesses or those where the owner has less than 12 months experience are more likely to be turned down, but there are other factors that SMEs of any age can address now to help them be successful in the future:

- Demonstrating financial capability. How the SME’s bank account has been run is important — bounced cheques, missed loan repayments and CCJs are all strong deterrents. These have impacted 13% of SMEs

- Having a trained accountant, financial controller or a staff member with a financial qualification or training also increases the likelihood of success. 25% of SMEs currently have such personnel

- Producing regular management reports is an advantage when applying for new facilities. According to the latest wave of research, less than half of SME’s (44%) produce such reports

Looking forward, the results of the latest wave of research show 48% of SMEs plan to grow in the next year, the highest proportion recorded to date (44% in Q4 2011), with more smaller SME’s planning to expand. However, slightly more SMEs identified the economy as the main barrier to them running their business the way they wanted (37%, up from 35% in Q4), ahead of ‘legislation & regulation’ and ‘cash flow & late payment’, both of which were seen as a major obstacle by 14% of SMEs.

Slightly more SMEs have plans to apply for finance in the next three months (16% in Q1 2012 compared to 14% in Q4 2011), and they now show the highest level of confidence so far that a bank would agree to their request — up six percentage points to 52% since the last wave of research.

25% of all SMEs are future ‘would-be seekers’ who would like to apply for finance in the next three months but for various reasons will not do so, up from 20% in Q4 2011. As with SMEs more generally, the economy plays a key role - 54% of these future ‘would-be seekers’ identified their main reason for not seeking borrowing as reluctance to borrow in the current economic climate.

“With 12 months of data in the SME Finance Monitor, we can see that overall overdraft success rates have improved but that challenges remain for applications for new or increased borrowing," Shiona Davies, Director at BDRC Continental, said.

"We can now give a clearer picture of what helps and what hinders these applications for finance. This is key information for SMEs in the current difficult economic circumstances.”

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