Commercial News

Demand for SME finance drops as uncertainty rises

Rozi Jones -
2nd October 2018
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"85% of those who applied for finance were successful but demand for finance remains limited. "

Just a third of SMEs are using external finance as demand for finance remains limited, according to the quarterly SME finance monitor from research group BVA BDRC.

In H1 2018, 34% were using some form of external finance, but 49% met the definition of a ‘permanent non-borrower’ with little apparent appetite for finance – the highest level recorded to date.

The research found that there are a range of factors that might be impacting the current level of demand for finance. SMEs continued to demonstrate attitudes of self-reliance, but also some caution about the future.

51% of SMEs agreed that the future felt uncertain, so they were being very cautious with their plans for the business.

Three in ten said trade credit and/or credit balances reduced their need for finance, and a similar proportion had seen an injection of personal funds. Confidence that a provider would agree to lend remained lower than current application success rates.

Additionally, potential applicants for finance remained less confident of success (53%) than current success rates would suggest (85%).

38% of SMEs felt that it was quite difficult for businesses like theirs to get finance, with the smaller SMEs much more likely to agree.

Shiona Davies, director at BVA BDRC, commented: “There have been no dramatic changes in attitude in 2018 to date, but SMEs are showing some signs of caution in the face of an uncertain future. 85% of those who applied for finance were successful but demand for finance remains limited. There is no single reason for this; it is likely to be a combination of confidence, attitudes to finance, the availability of other funding (e.g. trade credit) and other factors (such as awareness of finance options available). It is also difficult to say with certainty what the impact of this might be on business performance, but levels of innovation have declined over time.”  

Stephen Pegge, director of commercial finance at UK Finance, said: “These figures show SMEs should be confident in approaching their bank for finance, as 85% of applications are successful. It is encouraging to see six in ten SMEs have a high level of trust in their main bank, which UK Finance and its members are working hard to improve further.

“However, overall appetite for finance amongst SMEs remains subdued, with many reluctant to borrow amid uncertainty over future trading conditions. Legislation and red tape, political uncertainty and the current economic climate are all increasingly cited as issues holding SMEs back, while only one in 20 see access to finance as a major barrier.

“This underlines the importance of the government, finance industry and regulators continuing to work together to address these issues and help SMEs grow and prosper.”

Chirag Shah, CEO of Nucleus Commercial Finance, added: “Today’s figures show us that businesses shouldn’t shy away from what external finance could help them to achieve. With only a third (34%) of SMEs using external finance there are many who are letting opportunities pass their business by. This may be holding back their expansion, restricting head count and denting profits.

"Many SMEs are self-reliant twice as many likely to make plans based on what they can afford (79%), rather than being happy to borrow to help the business grow (33%). But businesses shouldn’t be afraid of exploring external finance options especially as the data also shows us that 85% of applications are successful. As an industry we need to support businesses in understanding the many options available to them, to help them reach their full potential."

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