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Economy the Biggest Barrier to SME Lending

The latest BDRC Continental SME Finance Monitor has shown that the current economic climate is one of the biggest barriers for small and medium businesses applying for extra finance. This shows the importance for small businesses to investigate all their options when it comes to funding if they want to achieve growth – in the current economy, strong growth is difficult to pin down so it might take a bit of extra effort.

The Monitor investigates how available external finance is to the UK’s SMEs. It provides an all around picture of SME attitudes towards finance as well as the trends surrounding funding for SMEs. There were a few key themes that came up in the latest wave of interviews, conducted up to the end of Q1 2013.

- The economic climate is an increasing barrier to applying for finance. In Q1 of this year, 19% of SMEs thought they were a ‘future would be seeker’ of finance but thought it was unlikely that they would apply. 63% said they would not want to borrow in the current economic climate. This is the highest level to date.

- SMEs are reporting lower use of external finance. 39% of SMEs were using any external finance method in Q1 of 2013, the lowest level recorded to date and down from 50% in the previous quarter. The use of core banking products such as loans and overdrafts has fallen from 40% in Q1 2012 to 32% in Q1 2013.

- Awareness of Funding for Lending has improved, but awareness of other initiatives has remained limited and unchanged. This highlights the importance of remaining aware of the funding options out there, especially when it comes to alternative finance.

This extensive report highlights many other facets of the SME lending market, but the fact remains that many businesses perceive  the economy as their biggest obstacle to borrowing. If businesses are struggling with cash flow then it could be worth looking into invoice finance – there’s no new debt to take on, and it’s one of the few ways of finance that actually grows alongside your business.

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