British small and medium-sized businesses are planning on borrowing an average of £41,770 in 2017, according to new results from Zurich SME Risk Index. This would mark an increase of approximately one fifth (22 per cent) compared with 2016, when small businesses borrowed on average just £34,375. As a result, should the number of businesses that borrow in 2017 be consistent with levels recorded in 2016, overall lending to SMEs could soar above £50 billion this coming year.
The survey of over 1,000 SME owners and decision makers shows that, of those intending to borrow money this coming year, almost two in five (38 per cent) intend on borrowing £100,000 or more, while a quarter (25 per cent) plan to borrow more than £250,000. As many as one in fifty (2 per cent) small and medium-sized businesses in the UK plan to borrow more than £1,000,000, which could total more than 100,000 businesses nationwide.
Most commonly, SME owners secured loans against their business in 2016. More than one in ten (12 per cent) has taken a loan out against their own commercial premises and almost one in ten (9 per cent) against their business’ equipment, while business invoices and equity stakes are used by a combined one in seven (14 per cent) business owners in 2016.
Of those that took out loans in 2016, more than one in ten (12 per cent) secured their loan against their own residential property and one in twenty (5 per cent) took out a loan against collateral belonging to friends and family. More than a quarter (27 per cent) do not know the source of their security.
Britain’s credit culture
The statistics show that many businesses are habitual borrowers. Of those that have taken out loans in the past ten years (30 per cent of those asked), three in every five (18 per cent) have taken out more than one loan and a staggering one in six (5 per cent) have taken out five of more.
Despite this, the survey suggests that many business owners who borrow habitually are doing so sustainably. Four in five (78 per cent) of those who have taken out five or more loans in the last ten years has a net revenue of more than £1 million, while nearly two in five has a net revenue of more than £10 million, indicating that they are using strong revenue streams to service their debts effectively.
Most encouraging of all is that most businesses report self-sufficiency and state that they have no need to borrowing at all. Almost two thirds (65 per cent) did not borrow anything in 2016 and almost two thirds (64 per cent) intend not to in 2017. More than half (55 per cent) of small and medium-sized business owners have not taken out a single loan in the last ten years.
Anne Griffiths, head of SME proposition at Zurich, comments, ‘£50 billion in borrowed money is an enormous sum, and in uncertain times like these, businesses must make sure they have a solid business plan and support in place to service their loans while staying profitable.’
‘Borrowing can often be indicative of confidence, and increased investment in talent, equipment and business premises for growth may be one of the most encouraging economic indicators of all. The business landscape appears rife with uncertainty, but SMEs have long been the building blocks of this economy and as long as they are building themselves sensibly, sustainably, with contingencies in place, then the UK can be confident in the health of its economy.’