Business Borrowing Subdued Amid Economic Uncertainty

Nearly 40% of UK small and medium sized businesses  think that it might be difficult to obtain credit and just under a third (31%) see trade finance, or the maintenance of a healthy credit balance as an alternative to taking out a loan or overdraft, according to the latest BDRC-BVA SME Finance Monitor report, covering the second quarter of 2018.   

Based on interviews with 4,500 managers, the report finds that among those businesses that do apply for a bank  loan or overdraft, the acceptance rate is around 85%.

Appetite Subdued

But the appetite for borrowing is subdued and the number of applications relatively low.  While 34% of those questioned were using external finance and 33% said they would be happy to borrow to grow, almost half (49%) fitted the report authors’ definition of ‘permanent’ non borrowers. Looking back on the previous 12 months, only 4.0% of companies said they had needed external finance. A majority of those who did identify a borrowing requirement   – typically to fund expansion or manage cash flow – went on to seek finance, with two thirds approaching their main bank, at least in the first instance. However, 9.0% sought new sources of finance. While lack of access to finance was not high on the list of factors putting brakes on their business, 38% felt accessing finance might be difficult.

Responding to the report, the financial services industry trade body UK Finance, welcomed the high level of loan application acceptances on the part of banks.

“These figures show SMEs should be confident in approaching their bank for finance, as 85% of applications are successful. It is encouraging to see six in ten SMEs have a high level of trust in their main bank, which UK Finance and its members are working hard to improve further,” said Stephen Pegge, the organisation’s Director of Commercial Finance.  

Storm Clouds

But there may be some storm clouds hanging over the banking industry. In the same week that the BDRC-BVA report was published, RBS chief executive, Ross McEwan warned that a no-deal Brexit could push the UK into recession. In an interview with the BBC, McEwan added that the uncertain economic outlook had caused his bank to take a more cautious approach to lending.  That caution aligns with respondents to the SME Finance Monitor, who cited economic uncertainty as one of the chief factors inhibiting progress.

 

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