UK SMEs less likely to turn to banks for finance

Money

Fewer small and medium-sized enterprises (SMEs) in the UK are planning to apply for external finance, and those that will are less confident of success, a new survey showed today.

The sixth quarterly SME Finance Monitor from market research firm BDRC Continental, which investigates the availability of external finance for SMEs, found that businesses are increasingly unlikely to see external finance as an option for them.

In the third quarter of 2012 more than half (57%) of all SMEs questioned reported that they don’t use any external finance and have no immediate plans to do so. This proportion has increased over time.

Only four in ten SMEs reported using any form of external finance.

The survey found that 12% of SMEs plan to seek external finance in the next 12 months, although a record low of just a third (33%) of those planning to apply were confident that the bank would agree to their request.

In fact, the level of confidence that the bank will provide finance is lower than the actual success rates. Most applications for funds are successful.

Of all applications recorded in the SME Finance Monitor, 71% resulted in a loan or overdraft while a quarter (23%) were declined. This is equivalent to 3% of all SMEs. The remainder accessed other forms of funding.

Overdraft applications continue to be more successful than loans, BDRC Continental noted.

Commenting on the survey results, Emma Roberts, head of Enterprise for business organisation the CBI, highlighted the fact that new finance applications are less likely to be successful than renewals, reflecting the low appetite for risk amongst finance providers.

EEF, the manufacturers’ organisation, said that disengagement with external finance providers is rising and the UK needs a more dynamic financial sector supporting the real economy.

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