British SMEs borrowing 'at lowest level on record'

Optimism in the Small-to-Medium-sized Enterprise sector in the UK is returning, as witnessed by business intelligence gathered by a finance monitor showing a record low in firms seeking credit this year.

Two thirds of British businesses say they are not intending to seek finance - including banks loans, overdrafts and credit cards - in the UK, either from a bank or externally in the near future.

Companies that are applying for credit reported they are more confident they will not be turned down.

BDRC Continental's latest quarterly SME Finance report shows the economy is seen as less of a barrier to SME growth, more are profitable and 45% expect to grow over the year.

Their data found nearly half of the UK’s SMEs are now classed as Permanent Non-Borrowers (PNBs). The first quarter of this year saw an increase in the proportion of SMEs meeting the PNB definition to 48%, the highest level to date when compared to 30 per cent in Q1 2012, and 41 per cent for the same period the following year.

Nearly 80 per cent of firms said they were happy with their current finance arrangements and just seven per cent of businesses said access to credit would be a barrier to their growth.

According to the finance monitor, the number of UK SMEs reporting a profit jumped to 69 percent, up five per cent on the previous quarter, with fewer reporting having to use their own cash to finance running costs.

Just a third of SMEs - the lowest level in the survey's history - reported using external finance in Q1, with the numbers of permanent non-borrowers at 48 per cent. Two thirds of those applicants were successful in obtaining the credit they applied for.

There was a fall in the number of small businesses with a worse than average risk rating, dropping from 56 per cent in Q2 2013 to 47 per cent in Q1 2014.

Major barriers to expansion for SMEs were primarily found to be the economic climate, with larger businesses reporting legislation and regulation were their biggest concern.

For the coming quarter, nearly three quarters of small to medium sized businesses said they would not look for finance, but remained aware of initiatives offering help and support to SMEs such as the Funding for Lending scheme, crowd funding and the appeals process.

The report's authors noted that banks are being more welcoming to small firms' borrowing requests than they might think, with back-up in the form of an appeals process, if they are initially refused.

They point out that a 'perception gap' continues to exist between small firms' expectation of success when applying to borrow, and the numbers of applicants who receive the external finance they asked for.

The fall in borrowing by small companies comes in spite of the Government’s repeated efforts to boost bank lending for firms.

Analysts have warned of on-going mistrust of UK financial institutions where borrowing by SMEs is concerned, but added that small businesses should embrace lending by financial institutions where required to enable them to realise their growth potential.

Another survey, recently undertaken by Business Banking Insight (BBI), echoed this sentiment...

Their business intelligence data showed that of 5,000 businesses, 85 per cent had not applied to a bank for credit in the past year.