The eagerly anticipated Q3 BDRC Continental SME Finance Monitor Report came out in November and it made interesting reading. Setup as a response to the Government’s 2010 Green Paper “Financing a Private Sector Recovery”, the taskforce behind the SME Finance Monitor comprises the CEOs and senior representatives of the six major UK banks. Based on 30,000 interviews with SMEs, this is the most authoritative quarterly analysis of SME financing available.

Financial City LandscapeOne of the key findings of the report was that 57% of SMEs no longer use any forms of external financing – the largest increase in this group since the report began in July 2011. Of those SMEs that did apply for financing through the bank, overdraft applications continue to be the most successful, although 3% of all applications for overdrafts and loans continue to be declined.

First time applicants for loans and overdrafts are the most likely to be declined. Of the group surveyed, 40% of first time applicants were successful in obtaining a loan or overdraft while 7% took different funding and 51% have no facility in place at all. At the same time, the report has found that profitability among SMEs is down 5% from Q1 2011, where it was 67%, to 62% in Q3 2012.

Looking at some of the other key indicators, the number of SMEs with a ‘worse than average’ credit score was up 7% to 55% in Q3 2012, with the number of SMEs holding small credits of £5000 or less also up 7% to 70%. More SMEs acknowledge a greater reliance on their overdraft facility, and often up to 50% beyond their limit.

44% of business owners/directors questioned in the report said that they had injected their own capital into the business. 18% of this group injected personal money to fund growth while 26% said they felt they had no choice but to resort to this. The perception among SMEs that access to financing is becoming a barrier to business development. This is not, however, born out by the figures which show that 71% of applications are successful.

Additionally, awareness among SMEs about new government-backed initiatives is unchanged showing a need for better communication strategies both from government and the banks themselves. In speaking with SMEs, the report found that of those declined by the banks for a facility application, few were offered alternative funding information or sources and even less were aware of appeals procedures. Overall advice given by banks was rated as ‘poor’.

In other areas of the report, the number of SMEs citing the current economic crisis as a barrier to growth is down 3% to 34% of those questioned with 13% saying that access to finance was a major barrier. Fewer SMEs were thinking of applying for financing, the report found, with those that were planning to apply less confident of success than before.

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