UK economic recovery hampered by continued distrust in the banking sector — report

The City of London

The Forum of Private Business, a UK business support group focused on the growth and profitability of small and medium-sized private businesses, reported on Thursday that a new survey from independent research consultancy BDRC Continental, the SME Finance Monitor, underlines concerns about continued distrust in the banking sector that could cause the UK’s economic recovery to slow.

Every quarter the SME Finance Monitor surveys 5,000 businesses about past borrowing events and future borrowing intentions. The latest survey for the first quarter of 2014 shows that, although there are positive signs that the UK economy is continuing to improve, the number of small businesses using loans and overdrafts as a way to fund future business growth has fallen. Of the businesses surveyed, a third used external finance, while 30% of respondents said they had injected their own funds into their business over the past year.

The SME Finance Monitor also revealed that 48% of small businesses that took part in the survey were ‘permanent non-borrowers’. These firms have chosen not to use any form of external finance to fund future development. Also, 51% of start-up firms that were surveyed said they planned to stay free of any banking restraints. This response indicates that there is a continuing long-term shift away from considering debt-based finance as a key element in funding for new ventures.

However, the figures from the SME Finance Monitor show that economic conditions during the first quarter of 2014 continued to be less of a barrier to business growth. Just 20% of small business owners said the current economic climate could be a significant barrier to growth, which was a fall of 12 percentage points when compared with the same quarter of 2013.

Phil Orford MBE, chief executive of the Forum of Private Business, commented: “The latest figures from the survey show a continued fall in the number of businesses that see the economy as a barrier to investment, but a continued decline in small firms looking to outside sources for future funding.

“In 2011 51 per cent of small businesses used external finance and 30 per cent were seen as ‘permanent non-borrowers’. Today’s figures show a clear reversal in the number of businesses looking to the banks and other external sources moving forward. Although the continuing mistrust of financial institutions is understandable, it is vital that small businesses are able to take the opportunities that are presented to them and external finance should have a significant role to play in helping businesses fully realise their growth potential.

“The Treasury is looking at a key area of how to get more businesses approaching non-bank sources of finance, such as through the alternative business funding website. This is a great opportunity for businesses to look to finance growth through these new and robust alternatives to traditional bank finance.”

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