By Daniel Hunter
BDRC Continental today publishes the ninth wave of its quarterly SME Finance Monitor investigating the availability of external finance for the UK’s small and medium-sized enterprises (SMEs).
The largest and most frequent study of its kind in the UK, research findings date back to the start of 2010, and are now based on more than 45,000 interviews with SMEs. The full report can be found online at http://www.sme-finance-monitor.co.uk/
The latest wave includes interviews up to the end of Q2 2013. Key new issues emerging include:
SMEs choosing from a wider range of sources of finance
• 44% of SMEs reported using external finance in Q2 2013, up from 39% in Q1
• Use of the ‘core’ products (loans, overdrafts and credit cards) remained flat at 33%, with overdrafts now used by 18% of all SMEs, the lowest level seen to date on the SME Finance Monitor
• The use of ‘other’ forms of external finance such as leasing, invoice discounting, grants and loans from directors increased in Q2 to boost the overall use of external finance. One in five SMEs is using such products (21%), up from 15% in recent quarters
• 61% of SMEs that were planning to apply/renew facilities in the next three months would consider one of the ‘core’ products of loan, overdraft or credit card, down from 70% in Q1
• 22% of SMEs were aware of ‘crowd funding’, up from 18% when this question was last asked in 2012, and increasing slightly with size of business. This included 2% of all SMEs who said that they had applied for such funding, and this varied very little by size or risk rating.
Further evidence of early signs of recovery…
• When asked to rate potential obstacles to running their business in the next 12 months, 28% of SMEs rated the current economic climate as a ‘major barrier’, still well ahead of the other factors measured, but the lowest level seen to date and down from a peak of 37% in Q1 2012
• 44% of all SMEs reported that they had grown in the past 12 months, up from 39% in Q1 2013 and 37% in Q4 2012. 14% of SMEs reported having grown by 20% or more, up slightly from 12% in the two previous quarters
• Looking ahead to the next 12 months, 51% of SMEs in Q2 2013 expected to grow, up from 48% in Q1, and the highest proportion to date. Most expected this growth to occur in existing markets and there was little indication that those who do not currently export planned to achieve growth overseas.
… But this is not yet reflected in appetite or applications for finance
• In the 12 months prior to interview, 19% of SMEs reported having had a borrowing event, and this has changed relatively little over recent quarters. Most SMEs (76%), met the definition of a ‘Happy non seeker’ of funds who had not applied and did not feel anything had stopped them doing so
• 14% of SMEs planned to apply for new or renewed facilities in the next three months, also with little variation over time. Larger SMEs and those planning to grow had more of an appetite for finance
• 10% of all SMEs rated ‘Access to Finance’ as a major barrier to running their business in the next year, increasing to 24% of those SMEs that were either planning to apply or who met the definition of a ‘Future would-be seeker’ of finance. This latter group also gave higher scores for all the potential barriers tested.
And the ‘perception’ gap still exists
• Of overdraft applications made in the last 18 months (Q1 2012 to Q2 2013), 57% were offered and accepted the facility they wanted and a further 14% had an overdraft after issues. 3% took other funding and 26% ended the process with no facility
• The equivalent figures for loans applied for in the past 18 months were 45% of applicants being offered and accepting the facility they wanted while a further 13% had a loan after issues. 8% took other funding and 34% ended the process with no facility
• Analysis suggested that more loan and overdraft applications were successful in 2012 than the overall profile of applicants would predict
• Amongst those planning to apply in the next three months, confidence that their bank would agree to their request fell from 40% of future applicants in Q1 to 30% in Q2, due to lower confidence amongst smaller future applicants (whose confidence has been more volatile over time)
• These levels of confidence remain in contrast to actual success rates. The ‘perception gap’ for renewals was 38% confident about a future application against 91% of such applications actually being successful, while for new facilities it was 25% confident against 50% of such applications being successful.
Awareness of the support available to SMEs remains limited
• 29% of SMEs in Q2 were aware of the Funding for Lending Scheme (FLS), ranging from 27% of those with 0 employees to
46% of those with 50-249 employees
• Over the three quarters for which data is available, awareness of the scheme increased from 23% to 29% overall
• 16% of all SMEs said that schemes like FLS made it more likely they would apply for finance, down from 20% when this was first asked in Q4 2012. Most SMEs, 77% in Q2, said that such schemes made no difference because they did not want funding
• Awareness of most other initiatives, including the appeals process, is flat over time (awareness of appeals is currently 12% overall).
Shiona Davies, Director at BDRC Continental, commented: “More SMEs are expecting to grow, and use of external finance increased in Q2. The latest data suggests that SMEs are expanding their use of ‘non-core’ sources of external finance, including an increasing awareness of crowd funding. Whilst awareness of the Funding for Lending Scheme has also increased, knowledge of other schemes available to help and support SMEs to access finance remained flat, which may mean that some SMEs are not as well equipped as they could be to take advantage of future opportunities.”