Economic conditions impacting on finance but concerns with providers remain

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The second BDRC SME Finance Monitor was released today showing that demand for finance may be easing as SMEs become increasingly concerned about the economic outlook. However, of SMEs described as ‘would be seekers' of finance (12% of the sample) the main reason cited for their not having applied for finance was being discouraged for fear of being turned down by their provider. This discouraged factor clearly is directly suppressing demand.

Other findings included:

• Over the wider set of results including the first release of the SME Finance Monitor in July, 63% of companies overall were granted new/renewed loan requests but worryingly being in the manufacturing sector made a decline more likely;

• 37% of new/renewed overdrafts granted to manufacturing companies required security compared with 25% for the overall sample;

• Half of businesses approached by their banks to cancel/renegotiate their facility were given no reason why.

What this says to me is that there's still a way to go on improving access to finance.

The banks and the BBA deserve credit for creating the Business Finance Taskforce and the SME Finance Monitor in particular is adding a considerable volume of data to the debate on the lending conditions faced by SMEs in the UK today.

But some of the other actions are clearly taking some time to bear fruit with the bruised relationship between companies and their banks no exception.

Hopefully the new Lending Code and lending principles, the appeals process that the banks have put in place for declined lending applications will start to build up trust with businesses in the near future.

Looking at the picture generally, it's perhaps not surprising that the outlook on demand is weighing heavily on firms' willingness to borrow. Europe is perhaps in its worst crisis since WWII and investor and business confidence is falling off a cliff.

But we can't directly change the situation in Europe.

We can act to change our own business environment.

Too many companies are still put off by how they perceive their providers will treat their requests for finance. It's also particularly concerning that manufacturing companies seem to be at the sharper end of struggles to access finance.

We know the government is already concerned at the state of access to finance with work on its credit easing plans clearly targeted at improving the situation.

The Autumn Statement on 29 November gives the opportunity for the government to set out clearly its ambition for making the UK a great place to start, grow, and finance a business. In particular it could:

• Indicate its general agreement that competition in the banking sector needs to increase (with a more detailed response to the Vickers report before the end of the year);• Support ways to increase sources of both debt and equity finance outside of banks;• Continue to press for better business-bank relations.

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