News

May 31, 2013

Bank lending to SMEs continues to fall

Despite government efforts, there has been another clear decline in bank lending to small firms for the first quarter of 2013. That's the finding of the latest SME Finance Monitor, conducted by BDRC Continental.

The research shows that the number of firms using external finance dipped to a new low in the first three months of 2013, with just 39% of SMEs actively seeking credit.

When the first Monitor was undertaken in 2011, the figure stood at 51%. Successive quarterly studies have since shown a decline, with the number of firms using external finance reaching 41% in the last quarter of 2012.

The BDRC research also suggests it is the smallest firms ­– employing nine or fewer – that are least likely to use external finance. Just 52% of these smallest firms are likely to use outside funding, compared to 73% of businesses with more than 50 employees.

However, there has been a significant decrease in all Q1 lending for SMEs, regardless of size, compared to the same period last year. In Q1 2012, 40% of firms were using bank finance. For the same period this year, that percentage has dropped to 32%.

The Monitor also reveals that three quarters of SMEs are happy non-seekers of finance – the highest number in the Monitor's history – which suggests that firms are either getting funding from elsewhere or are not looking to invest.

Phil Orford, chief executive of the Forum of Private Business (FPB), said: "It seems likely that the banks are still licking their wounds, and that may be the case for some time to come yet, but this pattern of decline can't continue if we are to have meaningful growth. If this trend continues into Q2 and Q3, eyebrows may be raised with all the talk recently of recovery, not to mention the government's 'supercharging' of the Funding for Lending scheme."

He added: "What seems highly likely now is that any recovery this summer is going to come largely from firms spending their own stockpiled cash, but this isn't sustainable in the long term."

The BDRC data also reveals that businesses are increasingly using alternative sources of funding. Bank overdraft usage has dropped more than a third since 2011, and even the use of credit cards has dropped, down from 20% in 2011 to 17% in 2013 Q1. Whilst around half of all applications for new money were successful, it remains the case that younger firms and start-ups are less likely to get a "yes" from their banks.