Why don’t SMEs want to borrow from banks?

posted by 8 years ago in News

Nearly half of British SMEs are now classed as PNBs (Permanent Non-Borrowers), who refuse to go to banks when looking for funding. In a poll of 5,000 SME’s taken by the BDRC, (the UK’s largest independent market research consultancy) 7 in 10 said they were  focussing on reducing their debts and striving to stay debt free.

According to the new SME Finance Monitor from BDRC, 52% of SMEs that are not hesitating to borrow from the banks are finding it a lot easier to secure the bank loans they are applying for, as the success rate for applicants has risen to 76%.

14% of companies plan to apply for external finance, whereas 27% have no ambition under any circumstance to borrow funding from anywhere. Although the percentage is not massively worrying, finance companies – including banks – will suffer from the low number of businesses that require funding.

The FLS (The Government’s Funding for Lending scheme) that encouraged banks to provide loans to small and medium-sized businesses, was branded a failure earlier this year after data showed that lending to SMEs fell by £810 million in the final quarter of last year. The overall decline from 2013 to 2014 nearly reached a mass of two billion pounds. The FLS will run until the end of 2015.

The figures, according to the BDRC, may begin to see some improvement – 52% of SME’s are still looking to borrow funds. Of this 52%, the proportion of these who have actually taken funding has increased from 18% to 35% compared to springtime last year.

In March, The Federation of Small Businesses hosted a survey which included 1,635 members and gathered information that proved, lending to small firms had increased – with 60% of loan applications being approved in three months, compared to only 45% approvals the year before.

The BDRC made a report showing that 76% of applications for new and renewed loans were approved and successful within the past 18 months. 55% of first-time applicants were able to borrow money, up from 38% in the previous period.

Bank debt is still a secure source of finance, while only 2% out of the 5,000 SME’s that polled used crowdfunding.

Phillip Brennan, head of businesscomparison.com said

“It is very positive that businesses can grow without credit. Access to credit is no longer the main issue now, I believe it is an awareness of options. Credit used correctly will help accelerate the economy.”