SME borrowing confidence rising

Half of SMEs are showing early signs of returning appetite for finance

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Over half of SMEs are showing early signs of returning appetite for finance to help their business grow, which could spell good news for the channel.

According to the SME Finance Monitor 2015 Q1 the stable figure for borrowing is due to the large proportion of Permanent Non-Borrowers (PNB’s), currently 48%.

Shiona Davies, director at BDRC Continental, commented: “Our analysis for this first quarter of 2015 shows some interesting differences between two clear groups of SMEs based on their attitude to finance.”

Seven in ten SMEs aim to pay off debt and stay debt free but 36% would take external finance for their business growth. Just over a quarter would not be prepared to borrow and half of SMEs meet the definition of a Permanent Non-Borrower.

The BDNC Continental report says that once these groups are removed, there are signs that demand for finance amongst the remaining SMEs may be starting to increase, coinciding with application success rates reaching their highest level to date at 76% over 18 months.

“One half now meet our definition of a Permanent Non-Borrower and the growth in the size of this group has masked a recent increase in use of, and appetite for, finance amongst the other half of SMEs,” said Davies.

Once PNBs are removed, the figure for remaining SMEs that reported a borrowing “event” in the past 12 months rises from 18% to 35%. This has grown steadily since the start of 2014 and is back to levels seen in 2013.

Similarly, whilst 14% of all SMEs in Q1 planned to apply for new/renewed facilities in the three months after survey, this proportion shoots to 27% when PNB’s are removed.

The figure for successful applications made for new/renewed loans and overdrafts in the last 18 months has grown steadily over recent quarters (it was 66% for the 18 months to Q2 2014), due to improving success rates for new money applications, including 55% of first time applicants (FTAs) in the 18 months to Q1 2015.

“These signs of an increasing appetite for finance come at a time when success rates amongst those who do apply are at their highest level seen to date on the Monitor (including for First Time Applicants), yet the ‘Confidence Gap’ between actual and perceived success rates remains,” warns Davies.

The report also found that just under one third (31%) of SMEs thought they were aware of any support scheme for SME funding, though when prompted with the names of five key initiatives, awareness increased to 53%.

Awareness of crowd funding compares well with these other initiatives, with 38% of SMEs (excluding PNBs) aware in Q1 2015; the highest level recorded to date, but at only 2% for year ending Q1 2015, use remains very limited. Indeed, two thirds of aware SMEs would not consider it.

“With the uncertainty caused by the General Election now over,” concluded Davies, “it will be fascinating to see whether that appetite for loans and overdrafts or indeed other forms of finance continues to grow amongst SMEs.”

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