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Bank Lending

Eight out of ten SMEs have not sought, or wanted to seek, external finance

By CreditMan Friday, February 28, 2014

BDRC Continental ( has published the eleventh 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 55,000 interviews with SMEs. The full report can be found online at

Shiona Davies, Director at BDRC Continental, commented: "SMEs ended 2013 feeling more positive about the economy. However, there are few signs of this leading to an increased demand for external finance. There is little in the way of frustrated demand, as eight out of ten SMEs are 'happy non-seekers' of finance. Where applications have been made, there is a clear divide in success rates between on the one hand the larger established businesses or those renewing existing facilities, and on the other the smaller or younger applicants, especially those applying for the first time who are less likely to be successful."

The latest research includes interviews up to the end of Q4 2013. Key findings include:

- The proportion of SMEs that see the current economic climate as a major obstacle for their business has almost halved from its peak at the start of 2012, and there are a number of other positive signals from SMEs

* 21% of SMEs rated the current economic climate as a major obstacle to their business in Q4 2013, down from a peak of 37% in Q1 2012. Whilst it is still the top rated factor of those tested, amongst larger SMEs it is now no more of a barrier than legislation and regulation.
* The proportion of SMEs receiving injections of personal funds declined in Q3 and Q4 2013 (currently 33%). This was due to fewer SMEs feeling that they 'had to' inject funds (15% in Q4 2013 compared to 24% in Q4 2012).
* Larger SMEs are more likely to be anticipating growth in the year ahead. Analysis by size showed an increasing proportion of larger SMEs with 10-249 employees predicting growth and in Q4 around two-thirds of these SMEs expected to grow in the following 12 months. Overall, 48% of all SMEs planned to grow in the 12 months after Q4 2013, and this has been stable during 2013.

- Applications for new/renewed finance were stable but limited and at lower levels in 2013 than 2012. Meanwhile, the proportion of 'Happy non-seekers' of finance increased again to the highest level seen to date with little sign of any frustrated demand for finance

* SMEs were most likely to meet the definition of a 'Happy non-seeker' of finance (these are SMEs who reported that they had not applied for finance in the previous 12 months and nothing had stopped them). This was the case for 79% of SMEs in Q4 2013, the highest proportion to date (up from 73% in Q4 2012).
* 8% of SMEs had applied for a new or renewed loan or overdraft facility in the 12 months prior to Q4 2013. Levels of application were stable during 2013, but at a lower level than in 2012.
* There is little sign of a frustrated demand for finance, with a declining proportion of SMEs wanting to apply for finance but feeling that something had stopped them. 4% of SMEs met this definition of a 'Would-be seeker' of finance for the 12 months to Q4 2013 and looking forward, 1% of SMEs had an identified need for finance in the next three months that they did not think they would apply for.

- Most applications were successful. Renewals were twice as likely to be successful as applications for new money and over time first time applicants have become less likely to be successful.

* Around 7 out of 10 of all loan and overdraft applications each quarter have resulted in a facility.
* Those renewing an existing facility were twice as likely to be successful (96% of those renewing Q3 2012 to Q4 2013 now have a facility) as those applying for new funds (48% of those applying for new money Q3 2012 to Q4 2013 now have a facility).
* As in previous years, smaller, younger SMEs and those applying for the first time were less likely than other applicants to be successful. Success rates for first time applicants in 2013 to date are also lower than in previous years, with 60% of first time applicants ending the process with no facility (up from 51% in 2012).

- Future appetite for finance also remained limited. Confidence that this future application would be successful remained lower than current success rates would suggest.

* 15% of SMEs planned to apply for new or renewed finance in the 3 months after interview, in line with previous quarters.
* 41% of potential applicants in Q4 2013 were confident that their bank would agree to a future request, unchanged from Q3. Confidence amongst those with 10-249 employees, or with a minimal/low risk rating improved in Q4 to the highest levels seen to date, and was stable for smaller applicants and those with an average or worse than average risk rating.
* Levels of confidence remained in contrast to current success levels. Success rates for renewals Q3 2012 to Q4 2013 were 96%, compared to 56% confidence amongst those planning to renew a facility, while for new funds success rates were 48% against a confidence level of 29%.

- Awareness of support measures available to help SMEs has plateaued.
SMEs remain more likely to be aware of Funding for Lending than other initiatives, but over time fewer SMEs feel that it will encourage them to seek finance. Awareness of the appeals process has improved somewhat amongst those declined for a facility, but not for SMEs overall.

* 52% of SMEs were aware of any of the support initiatives tested, down slightly from 56% in Q3 2013.
* Funding for Lending (FLS) had the highest awareness of any individual scheme at 29%. Awareness has improved over the course of 2013 (it was 23% in Q4 2012) although Q4 was the first quarter not to record a quarter on quarter increase (in Q3 awareness was 30%).
* The proportion feeling that schemes such as FLS would encourage them to apply for finance has declined during 2013. In Q4 2013, 14% of SMEs thought such schemes would provide an encouragement, down from 20% in Q4 2012. Most SMEs, 77%, said that such schemes made no difference to them as they were not looking for finance.
* Awareness of the appeals process for declined applications was 13% for SMEs as a whole in 2013 and stable over time. Amongst those who had experienced being declined for a facility, awareness of the appeals process was higher for applications made in 2013 than in 2012 (for overdrafts it was 19% in 2013 v 13% in 2012 and for loans 16% v 8%).

A full copy of the SME Finance Monitor is available at: