"Although Brexit continues to dominate the headlines and SMEs still cite political uncertainty as a major barrier to business growth, it’s encouraging to see that they remain ambitious."
In the first half of 2019, and for the first time since 2014, there were more SMEs using finance than meeting the definition of a permanent non-borrower, according to the latest data from BVA BDRC.
More SMEs are planning to grow, while stable proportions of SMEs have been profitable and the proportion being innovative is no longer declining. This is despite more SMEs seeing the economic climate and/or political uncertainty as barriers to running their business.
50% of SMEs plan to grow in the next 12 months but 25% see political uncertainty/government policy as a major barrier to their business.
There has also been an increase in the proportion citing the economic climate as a barrier, from 13% in 2015 to 17% in 2018 and 22% in Q2 2019.
In H1 2019, 46% of SMEs were using external finance, up from 36% in 2018. This means that 46% of SMEs are now using finance, compared to 41% who are permanent non-borrowers.
Despite the wider use of finance, SMEs attitudes to finance have not (yet) softened – in H1 2019, 29% agreed that they were happy to borrow to grow, down from 32% in 2018 and the lowest level recorded to date.
Despite this, most of those who had a need for funding took some action. 61% applied for finance, and half of them applied to their main bank. But compared to those who reported a need for finance in 2018, those interviewed in H1 2019 were somewhat less likely to have applied and more likely to have provided all or some of the finding themselves.
76% of those applying for a new or renewed facility were successful, with 69% offered what they wanted, 6% with a facility after issues and 2% taking a different product from the same provider.
Looking forward, most SMEs expected to be happy non-seekers of finance and demand for finance was stable. Future would-be seekers remained likely to see the economic climate as a key barrier to a future application.
Shiona Davies, director at BVA BDRC, commented: “We are living through uncertain times and this is being reflected amongst SMEs. They remain profitable, but more see improving profit margins as a priority. An increasing proportion are planning to grow, however there is also an increasing gap between growth achieved and expected. Use of finance has increased, yet appetite for finance and new applications remains limited. Most applications are made to the main bank for loans or overdrafts, and most of those who apply are successful, but there are signs of more SMEs considering self-funding alongside, or instead of, an application for finance. Future appetite for finance remains stable, although an increasing minority of SMEs are looking to reduce their use of external finance.”
Chirag Shah, CEO of Nucleus Commercial Finance, added: “Although Brexit continues to dominate the headlines and SMEs still cite political uncertainty as a major barrier to business growth, it’s encouraging to see that they remain ambitious. Half plan on growing their business over the next 12 months, compared to just 43% before the 2016 referendum, with increasing numbers using external finance to fulfil their business ambitions.
“SMEs underpin the UK economy and it’s vital that we as an industry help support them during this challenging period. We’re here to reassure businesses that there are alternative finance options available, which offer flexible and tailored solutions to help them to stay ahead of the competition.”