BDCR Group SME Lending Report Q4 2017
The BDCR Quarterly SME Finance Monitor has provided Government and private sector bodies an understanding of the SME credit market since 2011. Over 100,000 interviews with UK small business have now been conducted, at an average of 4500 each quarter. The aim of the reports to allow key interest groups to understand the state of the UK SME lending, UK SME credit and UK SME loans market. The latest report was constructed with the Scaleup Institute and was launched at the UK Stock Exchange on the 15th March 2018. It details businesses across the UK, but it will have implications for business loans West Midlands and business loans Birmingham.
The latest report on UK small business credit, UK small business loans and UK small business finance provides a evidence for what was widely assumed by market observers. Although a growing number of SMEs are now considering external finance (38%), with 31% using core finance; SME business loans, SME overdrafts and SME credit cards, the largest group are considered to be permanent non-borrowers (47%). These UK small businesses were not accessing external finance and were showing little appetite to do so. The proportion of UK small business in this category is unchanged since 2015. There is also a very limited demand for new SME finance or renewed SME finance, with only 5% of businesses reporting applications for new small business finance. This level is half the level of 2012 (11%). The largest group were “happy non-seekers of finance” at 83% of small businesses.
The state of UK SMEs were positive, with most SMEs reporting making a profit (82%) and nearly half stating they had grown (42%). UK small business have been making use of holistic sources of funding including; trade credit (35%), Director-funded injections (65%), although the majority of businesses had not heard of finance opportunities such as equity funding. Small businesses held a quarter of their turnovers as credit balances and the average credit line was £37,000. Interestingly, there is a continued negative perspective of the banks, with the majority of businesses (58%) not approaching their bank to discuss the financing of new opportunities.
There has been an increase in the number of successful applications for UK SME loans , UK SME overdrafts and UK SME credit (80%). However, these were very dependent on whether or not the applying businesses already had a credit facility. Renewals remained the most successful application, with first time applicants obtaining a lower success rate (60%). Businesses that obtained SME finance, SME loans and SME credit, stated that facilities were in place within good time of around 2-4 weeks. There is still some uncertainty within the SME lending market, with around 10% wanting to apply for finance but think something will stop them. UK small businesses did not rate access to finance as one of their major concerns, with only a small number believing it was the main barrier to growth (5%).
Although the BDCR Quarterly Report is a good national indicator of the SME finance market, it may not fully reflect the perspective of businesses within the West Midlands. Credex has engaged with a range of stakeholders who have indicated that SME access to finance is a major barrier to growth in the region. The BDCR sample structure had 8% of respondents from the West Midlands and used a lower figure for manufacturing (6%), of which manufacturing represents a much higher proportion of total output (14.8% in 2017). Responses to engagements by Credex has found that some small businesses have waited up to 12 months to access finance, much longer than the average in the report of 1 month. The length of time to access business loans West Midlands and business loans Birmingham would have major implications for the growth of SMEs within the region. Community Development Finance Initiatives (CDFIs) such as ART Business Loans and BCRS Business Loans are tirelessly addressing the shortfall of SME finance in the region. The local authorities have also have to provide small business grants and small business support services in the past to address these issues. Finally, the report does not consider systemic issues and perspectives, where its high levels of “happy non-seekers of finance” could be reflective decades of limited access to finance for small businesses. Businesses may appear happy, but in fact ambitions may be altered by such a hostile SME lending environment. The malpractices of the banks in the run up to the financial crisis would have only intensified these feelings. The BDRC Quarterly SME Finance Monitor is a good report to be considered against a wider range of primary and secondary data sources. Credex will review future releases carefully.