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Profitability stabilises for SMEs as conditions still tough

Profitability is stabilising amongst SMEs, despite the continued tough trading environment, the SME Finance Monitor has found.

Published by BDRC Continental, the monitor found the current economic climate continues to be seen as the main barrier to running a business, as nearly half cited it as the barrier to asking for funding too.

The report also suggested signs that SMEs are focussing on better financial management, as the number reporting credit issues, such as bounced cheques or missed loan repayments, has dropped slightly since the same period last year.

Appetite for, and use of, external finance amongst SMEs has declined over time, as the number of businesses using external finance had declined 8 percentage points.

Most businesses who had applied for external finance in the 12 months prior to interview had been successful (90% of loan and overdraft renewals).

For the first time in the research, SMEs were asked about using personal money to finance their business, and 41% said they had done so.

25% said they had taken the action because they had no other choice, and for SMEs with less than 10 employees, using their own money for finance was more likely to have been seen as a ‘necessity’ rather than ‘choice.’

Only 14% of SMEs were aware of the National Loan Guarantee Scheme, and 15% of all SMEs went on to say that it would make them “more likely” to apply for one of the lending products offered at a discount rate.

Dr Adam Marshall, Director of Policy at the British Chambers of Commerce (BCC), said:
“The latest statistics from the SME Finance Monitor demonstrate that there are still serious obstacles for many companies seeking external finance. The figures strengthen the case for the creation of a British Business Bank, which would help address some of the problems in business lending.

“It is striking that the number of successful applications has fallen. Many companies still say they feel discouraged from applying or are put off by the process. Despite claims that financial institutions are open for business, only a minority of first-time applicants are being approved for loans and overdrafts by their banks.

“While it is good to see that most existing bank customers get the facilities they need when they ask for them, lenders’ low risk appetite means that too many young and fast-growing companies aren’t getting access to the capital they require. With companies less confident of a successful application for finance in the future, there is more to be done to restore relationships, improve transparency and rebuild trust between businesses and banks.”

In his comments, Dr Marshall also called for a British business bank, which has recently been suggested by Chancellor George Osborne.

This was posted in Bdaily's Members' News section by Tom Keighley .