By Daniel Hunter
Almost two thirds (64%) of small to medium-sized enterprises (SMEs) have not sought any extra finance over the past two years from banks or any other form of lender, driven by concerns over debt and the state of the economy, a new YouGov study finds.
The SME Banking 2013 report looks at how small and medium-sized enterprises approach banking and borrowing. It shows that amongst SMEs that had not obtained additional finance in the last three years, the two main deterrents were not wanting to go into debt (34%) and fears about the economic climate (21%) — and were not linked to any issues the SMEs faced with their banks.
However, YouGov’s research finds that the next five factors that put off non-borrowing SMEs all were. A fifth (20%) didn’t like the interest rates charged, one in six (16%) did not want to face the hassle of setting up a new facility, 12% disliked the terms and conditions of the deal, 11% thought they would be turned down and one in ten (10%) were unhappy with the security demanded by the bank.
Simon Mottram, Director of Financial and Professional Services at YouGov, says: “There has been a lot of debate about whether banks are hampering lending to small and medium sized businesses and limiting growth. Our research suggests it is more nuanced than a simple “yes/no” answer. Many businesses don’t apply for additional finance because they do not want to take on debt in times of economic uncertainty; however, the banks are often behind the secondary reasons for not borrowing more.”
YouGov’s study shows that more than one in three (36%) SMEs have looked beyond traditional lending institutions for finance. One in five has secured business angels/private investors (22%), government/public sector loans (22%) or crowd funding (21%). Around the same amount took out leasing/hire purchase agreements (20%), secured venture capital (19%) or accessed money from owners and directors (18%).
The report highlights the number of SMEs running enterprises through personal bank accounts. YouGov finds that there is an almost even split between SMEs that have business (46%) and personal accounts used for business purposes (42%). The remaining businesses use hybrid accounts. As might be expected, enterprises draw away from the personal market as they grow in scale. One man bands and newly established SMEs are the most likely to have personal banking relationships with their banks while larger companies are more likely to use business accounts.
Simon Mottram continues: “The large numbers of SMEs getting finance from non-bank sources could be a reflection of how difficult many are finding it to get anything out of their usual lenders. Tied to this is the large number of small and medium sized firms that are using personal accounts to run their enterprises. Part of the problem in terms of bank lending, the perceived failure of ‘Project Merlin’ and suspicion over the ‘Funding for Lending’ scheme could be that banks trying to get finance to SMEs through business banking might be focusing in the wrong area.”
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