Many SMEs do not trust traditional lenders – but why?

posted by 2 months ago in News
Many SMEs do not trust traditional lenders – but why?

Many SMEs are finding it hard to trust traditional lenders and have admitted that they would prefer to invest their personal savings and money into their business.

Research conducted by Hitachi Capital Invoice Finance found 80% of business owners who took part have invested their own savings into their company. 35% of SME owners will try their hardest to avoid borrowing funds from elsewhere. However, 67% have had no other choice but to borrow during the past 12 months to keep their business going.

53% of SMEs not wanting to borrow say their reason is to do with not wanting to owe money back, a further one in ten have revealed that due to borrowing it has landed their business in debt.

Of the 502 business decision makers surveyed, a small 15% have admitted that they do trust traditional lenders, 37% have said that the main reason they do not trust them is due to the reputation they hold, 30% say it is down to personal experience while 26% say it is because of security reasons and 9% have expressed that the media does not have an affect to their attitude.

Managing Director at Hitachi Capital Invoice Finance, Andy Dodd comments;

“It’s interesting to see business owners remaining cautious with regards to business funding, potentially restricting their ability to grow. There appears to be an ongoing negative perception of more common lenders, despite them using this option to keep their businesses funded. This shows a clear discrepancy between SMEs wanting to borrow from these types of lenders and them needing to.

“More than twenty percent also noted that maintaining their cashflow is a top concern for them for the year ahead, and indicates this is something they are currently struggling to manage. It is important for business owners of any kind to be aware of the funding options available to them and what they are eligible for, as there are a number of options available to them and what they are eligible for, as there are a number of options available to help prioritise overdue payments and maintain financial resource, particularly outside traditional lenders.”

Research found that 28% of the start-up businesses surveyed are the ones who tend to completely trust traditional lenders the most while 37% trust to an extent. Businesses who are more established have the least amount of trust when it comes to traditional lenders, in fact of those who took part – just 14% have trust. When split by location, 65% of businesses who took part that are located in London trust traditional lenders and 53% of those in Northern Ireland do not trust traditional lenders.

Enterprises that work within the business service sector are less likely to have the need or want finance compared to those in the recruitment sector – as part of the survey they were asked if they required any external finance over the past year – 51% of those in the business service sector ticked yes while 90% of recruitment agencies said they had.

Head of Business Finance at Businesscomparison.com, Laura Thomas adds;

“Only 15% of SMEs trusting traditional lenders is a concern. These are typically long-established institutions that you would think would be conveyed as trustworthy. However, it is always wise to cautiously enter into a lending agreement whether that be a traditional or alternative lender and to research the lenders personally rather than base decisions on their reputation alone.”