Majority of SME’s do not trust traditional lenders

The majority of SME’s struggle to trust traditional lenders, and in fact prefer to invest their own personal funds and savings into the business.

More than a third (35 per cent) of small to medium sized business owners try to avoid borrowing money for their business at all costs. Despite this, the majority (67 per cent) have had to do so in the past 12 months, new research reveals.

The study, from Hitachi Capital Invoice Finance, shows how 80 per cent of such business owners have invested personal savings into the business, and more than a third (36 per cent) would rather invest their own personal funds than borrow from an external source.

All companies surveyed in the North East of the UK, have invested their personal savings into the business –and 92 per cent have done so from Yorkshire and Humberside.

The main reason for not wanting to borrow money, is that companies want to owe as little as possible (53 per cent), with a further one in ten admitting that borrowing money has led the business into further debt in the past.

Of 502 business owners surveyed, just 15 per cent say they completely trust traditional lenders, and the main reasons for not trusting them is because of a bank’s reputation (37 per cent), followed by previous and personal experiences (30 per cent, 26 per cent) and for security reasons (26 per cent). The media does not appear to affect business owner’s attitudes towards traditional lenders (nine per cent).

Andy Dodd, managing director at Hitachi Capital Invoice Finance 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 SME’s 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 help prioritise overdue payments and maintain financial resource, particularly outside traditional lenders.’

Start-up business owners (of companies established for 12 months or less) tend to trust traditional lenders the most (28 per cent completely trust them and 37 per cent somewhat trust them). This is also the case for younger business owners.

More established businesses have the least trust in traditional lenders (only 14 per cent completely trust them.)

When it comes to location, those based in London are the most trusting (65 per cent do trust them) and those in Northern Ireland, the least (53 per cent say they do not trust them.)

Companies in the business service sector are least likely to want/need finance than the recruitment sector. For example, when asked if they had sought any external finance in the past 12 months, only 51 per cent of business services had, in comparison to 90 per cent of recruitment agencies.

Top five SME business concerns for 2018:

Turnover (38 per cent)
Brexit (28 per cent)
Bringing in new customers (27 per cent)
Market competition (24 per cent)
Cashflow preservation (21 per cent)

Further reading on traditional lenders

Owen Gough, SmallBusiness UK

Owen Gough

Owen was a reporter for Bonhill Group plc writing across the and titles before moving on to be a Digital Technology reporter for the

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