The results from the latest quarterly SME Finance monitor are in. It has found that of the 5,000 SMEs surveyed over the last three months, 43% have used external finance (bank overdrafts, loans or credit cards), down from 51% in the first quarter of 2012.
The figures will come as a blow to Bank of England governor Mervyn King, who was hoping that his new Funding for Lending scheme would help to ease the flow of credit to the UK’s small firms. But it might not be all Merv’s fault. Two thirds of business owners who balked at applying for a loan in the last quarter did so not because of a shortage of available credit, but because they were worried about losing control of their business or discouraged by the form-filling.
Just a third of those who wanted to apply for a loan but did not cited access to credit as a problem, explaining that they feared being turned down or felt discouraged after making initial enquiries at a bank. And these sceptical business owners may have a point: the survey found that the businesses applying to renew loans or overdraft facilities were significantly more successful than those seeking funding for the first time.
Confidence is at a low ebb among UK small firms. Of all the businesses surveyed, a third that applied for loans were turned down, as well as a fifth of those that applied for overdrafts. And off those looking to secure an overdraft in the future, just 39% are confident of success compared with 52% in the first quarter, according to BDRC Continental, which compiled the survey.
Looking to the year ahead, 11% of SMEs predict that access to finance will be the key obstacle to running their businesses. Most – 35% - pin the blame on the flagging economy. Either way, it is clear that the nation’s SME’s are battering down the hatches and refusing to invest in new staff, equipment or training until the upturn comes around.
Not the kind of attitude the chancellor was banking on to get the UK out of recession. And hardly the vote of confidence he was hoping for to get his government-backed bank off the ground. Small businesses don't want to borrow, there is zero confidence in the banking system as a whole, and if they don't trust the big banks, they certainly won't want to borrow from one run by civil servants....