Worries building that SMEs are giving up on banks supporting their investments

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Today BDRC Continental released its latest SME Finance Monitor, a survey of 5,000 SMEs each quarter on access to finance.

While lending approval rates have remained stable for SMEs over the past year, the survey suggests that more are staying away from external finance providers altogether.

The proportion of firms that say they are currently using external finance now is down to 43% (from 51% at the start of 2011). The proportion of firms saying that they have used external finance in the past but not now has drifted up to 4% (from 2%).

This matters because access to finance is an important enablor and accelerator of investment. And external finance for SMEs, generally means banks.

This survey highlights concerns that investment could be hampered in our sector, which is bucking the economy-wide trend and increasing by a growing reluctance from SMEs to access external finance to support investment.

It comes on the back of our own survey late last month that showed the number of SMEs saying they did not need to borrow has steadily drifted up over the last 4-5 years to a survey-high of 51.6% - at the same time as investment is expanding in manufacturing - 5.5% on the quarter and 13% on the year in Q2.

What can we do about this?

We need creditworthy firms coming back through the doors of their banks and seeking support for their investments.

One reason that's not happening is that firms have lost faith in their banks following the financial crisis, rightly or wrongly believing banks are not supporting them when they need support the most. We need to rebuild trust between SMEs and the financial sector.

To some extent we know the banks get this and to their credit they set out a range of commitments to improve access to finance and customer service in their 'Business Finance Taskforce' commitments made in October 2010.

Unfortunately the latest SME Finance Monitor reveals that awareness amongst SMEs of bank initiatives designed to improve customer service is low.

Awareness of the banks' new appeals process for declined overdrafts and loan applications is at 14% for declined overdraft applicants and just 8% for declined loan applicants. This is despite the fact that the appeals process has overturned roughly 40% of original decisions.

Similarly, just 13% of those declined for an overdraft and 9% of those declined for a loan were signposted to alternative sources of finance - another commitment from the banks.

It would be good to see banks push on these schemes much harder because they are genuine improvements to SME customer experiences - provided SMEs know about them.


Media Team 020 7654 1576

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