SMEs Remain 'Reluctant To Borrow'

SMEs Have Not Returned To The Lending Market

29.05.2014

Fergal Dowling, Partner | +44 (0)121 214 5476

Despite a significant proportion of small and medium-sized enterprises (SMEs) returning to profit during the last two quarters, many are not looking to seek new finance from banks.

This is according to findings from a new survey, which found 69 per cent of the 5,000 firms questioned were profitable during their previous 12 months of trading, demonstrating a jump from 64 per cent during the first three months of 2013.

The SME Finance Monitor, published by the British Bankers Association (BBA), revealed 45 per cent of SMEs are planning to expand over the next year, with 12 per cent expecting to apply for new or renewed bank facilities.

Firms expressed confidence that lenders would approve their loan applications in the coming months. However, 82 per cent of the companies questioned said they were content to not seek new finance over the last 12 months.

The figures come after data released by the Office for National Statistics (ONS) on May 14th highlighted a fall in unemployment. According to the ONS, there were 30.43 million people in work between January and March this year, which was 283,000 more than the previous quarter.

ONS analysts found unemployment in the UK stood at 2.21 million during the first three months of the year, representing a significant drop of 133,000 between October and December 2013.

In light of its recent study, the BBA said: "Banks would encourage more businesses to come forward, as almost two-thirds of all applications for finance are approved - it's clear that firms are a lot more likely to be successful than they think."

The Bank of England (BoE) recently revealed bank lending to UK businesses is continuing to fall, despite the strengthening economy. The BoE's Trends in Lending report for the three months to February 2014 found the figure fell by £500 million over the last 12 months.

Expert Opinion
Although on one hand it is concerning that SMEs are not looking to approach banks for new finance, there are plenty of positives here.

“Almost half of smaller businesses in the survey said that they expected to grow during the next 12 months whilst over two thirds claimed to have been profitable during 2013/14. This clearly shows that the economy has turned a corner and is showing strong signs of growth.

“For this growth to sustainable, it is vital that SMEs have access to the financial support they need. This survey reveals that the vast majority are not looking at additional finance now, but it also demonstrates they are confident that they’ll be successful if and when they do.”
Fergal Dowling, Partner