SMEs continue to shun bank lending

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With events in the global economy dominating headlines, recent developments in the UK’s financial sector have been flying under the radar. Two reports outlining the current state of access to finance for SMEs were published this morning; the SME Finance Monitor for q2 2015 and the BoE Funding for Lending Scheme (FLS) statistics.


What does the data say?

The data shows that while credit conditions in the UK have been progressively loosening over the past few years, access to finance for SMEs remains subdued. Seven years from the onset of the financial crisis and nearly two years of the fastest growth in the G7, have been unable to move the needle in UK SME lending.

The key findings from the SME Finance Monitor are:

  1. The number of SMEs reporting a profit has increased from 65% in q1 2012 to 80% in q2 2015.

  2. The proportion of SMEs viewing the current economic climate as a barrier to lending has gone down from 37% in q1 2012 to 14% in q2 2015.

  3. Success rates have improved; 79% of applications made in the last 18 months were successful.

  4. But the use of external finance by SMEs has been falling progressively from 50% in q1 2012 to 36% in q2 2015, while 7 out of 10 plan to pay down debt and remain debt-free.

  5. The number of Permanent non-Borrowers[1] has increased from 30% in q1 2012 to 49% in q2 2015.


Is this a cause for concern?

This is a worrying mix of statistics. The gap between the economic performance of SMEs and their use of external finance has been widening in an almost counter-cyclical pattern. SMEs continue to be reluctant to finance growth through debt despite considerable improvements in market conditions and their own financial position.

The BoE’s statistics put a slightly more positive spin on the access to finance data. Statistics from the FLS show some improvement with the scheme generating positive net lending in 2015 in the range of £0.5bn in q2 compared with a quarterly average of -£0.5bn in 2014.

Still, despite the recent gradual improvements, aggregate net lending remains firmly rooted in negative territory in annual terms. The data indicates that we have a long way to go before credit conditions in financial markets return to – even close – to their pre-crisis trends.



[1] SMEs that do not use external finance and show no inclination to do so


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