SMEs have seen their profitability increase and barriers to their business decline, but use of external finance was flat compared to 2014 and lower than in previous years, according to the BDRC’s q4 2015 SME Finance Monitor published today.
Commenting on the findings, George Nikolaidis, Senior Economist at EFF, the manufacturers’ organisation, says: “The monitor shows that while SME profitability, success rates in accessing finance and confidence in the economy is on the up, the use of external finance is heading in the opposite direction.
“Despite some positive signs in recent quarters, the supply of finance remains constrained for the smallest SMEs and for first-time applicants, while the pool of businesses that have not applied nor are looking to apply for finance – continues to grow. What is more, demand for finance remains lacklustre, showing a lingering reluctance by SMEs to engage with the financial sector. There are some bright spots, however - the improvement in success rates is a good indication that supply dynamics have improved somewhat, particularly for larger SMEs.
“Some of the sluggish demand for finance stems from the need for more competition. Low diversity and transparency in financial products and obscure benefits from switching banks is limiting churn in the access to finance space. Complementing the CMA's proposed behavioural remedies with lowered barriers to entry for challenger banks could go a long way towards boosting competition in the financial sector and reeling disengaged businesses back in.”