Small companies focus on remaining debt free

Almost half of small and medium-sized businesses are 'permanent non-borrowers', research finds.

Seven in ten SMEs agree that their aim is to pay down debt and remain debt free, though 36 per cent would be prepared to take external finance to help their business grow, according to the SME Finance Monitor by BDRC Continental.

Just over quarter (27 per cent) of SMEs would not be prepared to borrow in those circumstances.

However, once ‘permanent non-borrowers’ (PNBs) are removed from the sample, the proportion of remaining SMEs reporting a borrowing ‘event’ in the past 12 months rises from 18 per cent to 35 per cent. This has increased steadily since the start of 2014 back to levels seen in 2013.

Similarly, while 14 per cent of all SMEs in Q1 planned to apply for new/renewed facilities in the three months after interview, once the PNBs are excluded, the proportion planning to apply is boosted to 27 per cent of remaining SMEs, one of the highest figures to date.

Some 76 per cent of applications made for new/renewed loans and overdrafts in the last 18 months (Q4 2013-Q1 2015) were successful. This figure has grown steadily over recent quarters (it was 66 per cent for the 18 months to Q2 2014).

This is due to improving success rates for new money applications, including for First Time Applicants (FTAs) who have previously seen success rates declining. More than half of FTAs have been successful (55 per cent) in the 18 months to Q1 2015, up from 38 per cent for the 18 months to Q2 2014.

Just under one third (31 per cent) of SMEs are aware of any government or other support scheme for SME funding. However, once prompted with the names of five key initiatives, awareness increases to 53 per cent, including 23 per cent who are aware of the Funding for Lending Scheme, and 11 per cent who are aware of the British Business Bank.

Awareness of crowd funding compares well with awareness of these other initiatives, with 38 per cent of SMEs (excluding PNBs) aware of it in Q1 2015, the highest level recorded to date on the Monitor.

BDRC director Shiona Davies says, ‘Our analysis for this first quarter of 2015 shows some interesting differences between two clear groups of SMEs based on their attitude to finance. One half now meet our definition of a PNB and the growth in the size of this group has masked a recent increase in use of, and appetite for, finance amongst the other half of SMEs.’

Norman Carson, director of business development for finance provider Boost Capital adds, ‘Some SMEs remain cautious of new and unknown ways of borrowing money. Perversely, many of these cynics admit the ease of access to funds is very attractive as is the capital availability offered by alternative funders but the fear of the unfamiliar remains too great for them to overcome.

‘In fact, more than half of SMEs that have previously applied for alternative finance did so because of the greater flexibility offered than the high street banks.’

Further reading on business loans

Ben Lobel

Ben Lobel

Ben Lobel was the editor of from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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