The research findings date back to the start of 2010, and are based on more than 30,000 interviews with SMEs.
Of all applications reported to date to the SME Finance Monitor, 71% resulted in a loan or overdraft being approved. A quarter, (25%) were declined and the remainder took other funding. Overall confidence in being approved for a facility grew ten percentage points from Q3 2012 (33%) to 43% in Q4 2012. However, this figure remains well below actual success rates at 71%.
Nine out of ten successful applicants agreed that their new loan or overdraft facility had been put in place by the bank in good time. Seven out of ten successful overdraft facilities were in place within a week, and two thirds of loans were in place within a fortnight.
Appetite for external finance remained limited in Q4 2012. SMEs with more than ten employees have become less likely to use or apply for external finance. Over time a higher proportion of applications have come from SMEs with either a worse than average credit rating and/or making a first application for funds.
Analysis of all applications recorded shows that first time applicants are the least likely to receive facilities. Half (51%) of all first time applicants have been turned down, compared to a fifth (21%) of those applying for new money – but not for the first time. 8% of applicants renewing existing facilities have been refused.
A quarter of SMEs are aware of the Funding for Lending scheme, one fifth believe it will encourage them to apply for funding 23% of SMEs were aware of the Funding for Lending scheme introduced in summer 2012. Awareness increased by size, from 21% of those with no employees to 45% of larger SMEs with 50-249 employees. This compares well with other initiatives such as Business Mentors (21%), and is higher than awareness of the appeals process when applications are declined. Introduced in April 2011, 14% of declined overdraft and 8% of declined loan applicants knew of the appeals process.
A fifth (20%) of SMEs interviewed in Q4 2012 thought that schemes such as Funding for Lending made it more likely they would apply for funding – the equivalent of around 900,000 SMEs.
More than half (54%) of SMEs interviewed in Q4 2012 had some personal element to their business finances, for instance an injection of personal funds, a personal bank account, a facility in a personal name, or an application for a personal facility to be used for the business. At 59% the smallest SMEs (those with no employees) are the most likely to have this personal element to their finances, but it was also seen in 14% of the largest SMEs (50-249 employees).
The most common ‘personal’ element is an injection of personal funds. 40% of SMEs had such an injection in the last 12 months. Of those, 24% felt they had no choice but to inject funds, while a further 16% had chosen to do so to help the business develop. Often the amounts in question are relatively small – 60% had injected £5,000 or less.
Shiona Davies, Director at BDRC Continental, said:
“As this research builds, we’re able to unpick what’s happening in the SME market – not just overall but amongst key groups. Borrowing by first time applicants remains a challenge, but overall most SMEs that apply will be successful. Funding for Lending appears to resonate with SMEs of all sizes, and may provide the catalyst to encourage future applications for business finance and tackle what appears to be a perception gap around bank lending.”
