SME Finance Monitor. Current analysis 3 months to end October An independent report by BDRC, November 2017

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1 SME Finance Monitor Current analysis 3 months to end October An independent report by BDRC, November

2 Introduction The SME Finance Monitor was established in 2011 and provides detailed analysis of SMEs and their access to finance on a half yearly basis. The latest full report (YEQ2 ) was published on September 14 th. As fieldwork takes place on a continuous basis, it is also possible to provide headline data on key issues in between these full reports. This pack will therefore be provided on a monthly basis and provide the latest 3 months rolling data across a range of issues. The most recent data point for this report is the 3 months from August to October. Headline analysis is provided for all SMEs, with key questions split by size of SME. Some analysis is also provided by the type of international trade (if any) undertaken alongside domestic activity: Exporting but no importing (labelled as export only ) Importing but no exporting (labelled as import only) Both importing and exporting (labelled as import & export ) No international trade, SME only trades domestically (labelled as domestic sales only ) Differences shown month on month are not necessarily statistically significant. Differences of 4%+ month on month are needed for the total sample and up to 10%+ for some of the smaller groups (such as those trading internationally). 2

3 Use of external finance is currently showing little change. The largest SMEs are more likely to be using finance than in Time series: Use of external finance per quarter emps emps 1-9 emps 0 emps 73% 70% 58% 38% 72% 61% 4 36% All SMEs 44% 41% 37% 37% 33% 36% 35% 46% 36% 37% 38% 40% 3 38% 38% 40% Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 3m Apr 3m May 3m June 3m July 3m Aug 3m Sept 3m Oct There continues to be little change in the overall use of finance (40%), again due primarily to the 0 employee SMEs where use was 36%. Use of finance amongst those with employees has increased during (64% used external finance in ) Q15 Base : All respondents 3m Oct: /1383/1299/613 3

4 Use of finance by domestic SMEs is stable. SMEs that only export have become less likely than other international SMEs to use finance Time series: use of external finance by extent of international trade alongside domestic sales 51% 48% 43% 35% 45% 43% 32% 31% 66% 47% 57% 41% 42% 34% Export only Import only Import Uy- & export 33% 32% 55% 54% 45% 44% 47% 46% 44% 34% 35% 52% 5 44% 36% 36% 34% 33% Domestic sales only 57% 53% 53% 50% 51% 51% 47% 45% 46% 3 38% 37% 38% 3 38% 36% 2 24% 18% 2015 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 3m Apr 3m May 3m June 3m July 3m Aug 3m Sept 3m Oct Use any external finance Base : All 3mths to Oct: 175/284/306/3346 4

5 There remains more SMEs meeting the definition of a Permanent nonborrower than using external finance Time series: Permanent non-borrowers and users of external finance 44% 34% 40% 41% 43% 47% 37% 37% 4 33% 47% 4 36% 35% 42% 46% 47% 47% 48% 47% 48% 48% 46% 37% 38% 40% 3 36% 38% 38% 46% Permanent nonborrowers 40% Use any external finance now Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 3m Apr 3m May 3m June 3m July 3m Aug 3m Sept 3m Oct The Permanent non-borrowers are defined by not using external finance and showing no inclination to do so. The 3 months to October figure of 46% is in line with the proportion of PNBs across as a whole, and the gap between the PNBs and those using external finance remains little changed over most of. Q15/14 and others Base : All respondents 3m Oct

6 As their use of finance declines, exporters have become more likely to meet the definition of a Permanent non borrower Time series: Permanent non-borrowers by extent of international trade alongside domestic sales Export only Import only Import Uy- & export Domestic sales only 64% 68% 70% % 34% 50% 4 50% 46% 48% 45% 41% 40% 38% 40% 24% 43% 44% 37% 26% 57% 47% 53% 48% 4 53% 4 46% 44% 46% 47% 48% 45% 42% 44% 4 38% 38% 32% 2 30% 23% % 35% 47% 34% 33% 2015 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 3m Apr 3m May 3m June 3m July 3m Aug 3m Sept 3m Oct Permanent non-borrowers (no apparent appetite for finance) Base : All 3mths to Oct: 175/284/306/3346 6

7 The proportion of SMEs happy to use finance to grow remains at lower levels in than was seen in Time series: Agree that happy to use external finance to help business grow Emps No emps 50% All SMEs 42% 45% 44% 42% 44% 42% 34% 35% 34% 32% 33% 34% 35% 32% H Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 3m Apr 3m May 3m June 3m July 3m Aug 3m Sept 3m Oct After remaining consistent during, the proportion of SMEs willing to use finance to grow has been consistently lower in to date, with lower levels of agreement amongst both the 0 employee SMEs and those with employees. Base : All respondents 3m Oct:

8 SMEs that only export remain less willing to borrow to grow than other SMEs trading internationally Time series: happy to borrow to grow by international trade Export only Import only Import Uy- & export Domestic sales only 53% 51% 47% 44% 46% 42% 3 36% 46% 36% 31% 31% 2015 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 3m Apr 3m May 3m June 3m July 3m Aug 3m Sept 3m Oct Agree that happy to borrow to grow Base : All 3mths to Oct: 175/284/306/3346 8

9 3 in 10 SMEs have injected personal funds in. SMEs were slightly more likely to have chosen to do so than felt that they had to Time series: Injections of personal funds in previous 12 months Any injection 43% of funds 38% Felt had to inject funds Chose to inject funds 25% 20% 2 15% 17% 1 14% 27% 30% 14% 17% 25% 25% 14% 17% 11% 8% 31% 20% 2 31% 17% 18% 2 28% % 15% 15% 15% 31% 30% 17% 17% 11% 14% 14% 14% Any injection of funds Chose to inject funds Felt had to inject funds Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 3m Apr 3m May3m June 3m July 3m Aug 3m Sept 3m Oct The proportion of SMEs injecting funds fell from a peak of 43% in 2012 to around a quarter of SMEs during. In a steady 3 in 10 have reported an injection of funds with slightly more saying they chose to invest the funds than felt that they had to. Q15d2 Base : All respondents 3m Oct:

10 The proportion of SMEs holding more than 10,000 of credit balances is broadly stable and remains higher than in Time series: 10k credit balances held emps emps 77% 66% 8 80% 1-9 emps 32% 46% 0 emps 10% All SMEs 16% 17% 20% 24% 22% 21% 22% 23% 2 28% 24% 25% 25% 26% 27% 26% Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 3m Apr 3m May 3m June 3m July 3m Aug 3m Sept 3m Oct In 2015, 24% of SMEs held 10,000 or more in credit balances. In, 22% held such sums with little change overall during the year In all size bands, the proportion holding 10k or more of credit balances is currently higher in than it was in as a whole. 18% Q244 Base : All respondents excluding dk/ref 3 mths to Oct

11 The summer increase in the proportion of SMEs reporting growth has not been maintained but is currently stable Time series: Have grown (excluding Starts) emps emps 1-9 emps 0 emps 54% 4 43% 38% 62% 53% 45% 38% All SMEs 40% 42% 3 43% 40% % 41% 47% 46% 46% 42% 41% 40% Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 3m Apr 3m May 3m June 3m July 3m Aug 3m Sept 3m Oct Since 2012, the proportion of SMEs reporting growth has varied little and was 40% for as a whole. The 40% reported for the current period is lower than the 46-47% reported in spring/early summer, due primarily to lower growth amongst the smaller SMEs (46% of 0 employee SMEs reported growth in the 3 months to May compared to 38% currently). Currently only SMEs with employees are more likely to report growth than in Q245a Base : All respondents excluding Starts. 3 mths to Oct

12 Growth ambitions in have been stable overall. Larger SMEs are more likely to be planning to grow than they were in. Time series: Have plans to grow emps emps 1-9 emps 0 emps 67% 5 54% 46% 68% 61% 51% 41% 4 47% 45% 45% 41% 40% 47% 43% 45% 47% 45% 45% 44% 45% 44% All SMEs Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 3m Apr 3m May 3m June 3m July 3m Aug 3m Sept 3m Oct For as a whole, 43% of SMEs planned to grow, continuing the slight decline seen since For to date the position is stable overall and for most size bands, but the largest SMEs remain both more likely to have grown and more likely to be planning to grow than they were in (58%) Q225 Base : All respondents 3m Oct: /1383/1299/613 12

13 There is little to choose between the growth ambitions of SMEs that import, export and those that do both, all higher than domestic SMEs Time series: Growth plans by extent of international trade alongside domestic sales Export only Import only Import Uy- & export Domestic sales only 74% 70% 62% 63% 62% 48% 41% 42% 71% 75% 66% % 54% 45% 41% 38% 38% 67% 66% 52% 40% 71% 57% 60% 42% % 64% 6 65% 65% 63% 61% 60% 56% 44% 41% 40% 42% 66% 67% 63% 63% 58% 62% 41% 41% 2015 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 3m Apr 3m May 3m June 3m July 3m Aug 3m Sept 3m Oct Plan to grow in next 12 months Base : All 3mths to Oct: 175/284/306/

14 There has been no further increase in levels of concern around the current economic climate Time series: 8-10 Major obstacle to running business in next 12 months The current economic climate 34% 27% Political uncertainty 17% 10% 10% 10% 10% 10% 14% 14% 15% 15% 11% 16% 16% 14% 15% 14% Q1 16 Q2 16 Q3 16 Q4 16 Q m Apr 3m May 3m June 3m July 3m Aug 3m Sept 3m Oct During, concerns about political uncertainty have remained fairly stable (13-15%) at a slightly higher level than in. Concerns about the economic climate increased in from 11% to 16% but did not rise further in the 3m to October Q227 Barriers to running business as would want in next 12 months Base : All respondents 3m to Oct

15 SMEs with 1-9 employees are somewhat more concerned about the economic climate and political uncertainty Time series: % Rating The economic climate and Political uncertainty/govt policy 8-10 a major obstacle for next 12 months 11% 16% 11% 14% Economic climate Political uncertainty 14% 14% 14% 14% 14% 17% 16% 16% 16% 14% 18% 18% 16% 16% 2015 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 3m Oct 2015 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 3m Oct 0 emps 1-9 emps 17% 14% 15% 14% 16% 15% 1 14% 14% 8% 11% 14% 14% 14% 15% 10% 11% 7% 10% 2015 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 3m Oct 2015 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 3m Oct Q227a Base : All emps emps 15

16 Those who only import have shown more variable levels of concern about the economic climate during Time series: 8-10 economic climate by extent of international trade alongside domestic sales Export only Import only Import Uy- & export 34% Domestic sales only 31% 30% 18% 15% 10% 20% % 14% 26% 24% 18% 18% 18% 14% 10% 11% 11% 26% 17% 26% 22% 21% % 21% 14% 14% 11% 22% 1 15% 25% 23% 20% 2015 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 3m Apr 3m May 3m June 3m July 3m Aug 3m Sept 3m Oct Rating the current economic climate a major obstacle (8-10) Base : All 3mths to Oct: 175/284/306/

17 International SMEs are more concerned about political uncertainty than domestic SMEs, but levels of concern are currently stable Time series: 8-10 political uncertainty by extent of international trade alongside domestic sales Export only Import only Import Uy- & export Domestic sales only 1 11% 10% 14% 10% 10% 10% 7% 7% 10% 21% 16% 31% 26% 15% 11% 31% % 25% 22% 25% 25% 1 20% 20% 22% 20% 1 18% 11% 24% 26% 26% 23% 24% 22% 22% 23% 11% 2015 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 3m Apr 3m May 3m June 3m July 3m Aug 3m Sept 3m Oct Rating political uncertainty a major obstacle (8-10) Base : All 3mths to Oct: 175/284/306/

18 Most SMEs are Future happy non-seekers. Potential appetite for finance has been stable in recent months. Time series: Anticipated borrowing profile for next 3 months after Have plans to apply/renew Would be seekers - with need Would be seekers no need Happy non-seekers 14% 14% 14% 11% 11% 11% 10% 11% 11% 11% 3% 2% 1% 1% 1% 1% 1% 1% 1% 1% 20% 16% 14% 10% 11% 11% 10% 1% 1% 1% 1% 1% 10% 8% 1% 8% 63% 68% 71% 76% 74% 76% 77% 75% % % Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 3m Apr 3m May 3m June 3m July 3m Aug 3m Sept 3m Oct Each quarter, the majority of SMEs have expected to be Future happy non-seekers of finance. Over time this proportion has increased from two-thirds to almost 8 in 10 of SMEs as the proportion of Future wouldbe seekers has fallen. The proportion of SMEs with potential appetite for finance (planning to apply or a future would-be seeker ) has remained fairly stable. Q229 Base : All respondents 3m to Oct:

19 Future appetite for finance amongst the largest SMEs is back in line with other SMEs with employees Time series: % planning to apply Plan to apply 14% 10% 10% 10% 8% 11% 11% 17% 16% 15% 14% 14% 16% 14% 15% 2015 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 3m Oct 2015 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 3m Oct 0 emps 1-9 emps 1 20% 16% 16% 16% 15% 16% 16% 14% 14% 23% 1 15% 2015 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 3m Oct 2015 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 3m Oct Futfin Base : All emps emps 19

20 Appetite for external finance amongst international SMEs remains volatile in contrast to domestic only SMEs Time series: plan to apply for finance by extent of international trade alongside domestic sales Plan to apply for external finance Export only Import only Import Uy- & export Domestic sales only 31% 31% 26% 22% % 18% 1 18% 10% 22% 21% 1 20% 16% 17% 11% 11% 18% 10% 20% 10% 18% 21% 20% 18% 17% 14% 11% 11% 11% 11% 11% 23% 21% 16% 11% 10% 8% 6% 2015 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 3m Apr 3m May 3m June 3m July 3m Aug 3m Sept 3m Oct Appetite for finance amongst those that both import and export has ranged from 31% in Q2 and 3m to May to in the 3m to July. Those who export are currently showing a declining interest in finance (both use and appetite). Base : All 3mths to Oct: 175/284/306/

21 There is currently little to choose between domestic and international SMEs for being a future would-be seeker of finance Time series: future would be seekers by extent of international trade alongside domestic sales Expect to be a future would-be seeker of finance Export only Import only Import Uy- & export Domestic sales only 23% 16% 14% 11% 11% 10% 11% 11% 11% 8% 14% 10% 6% 7% 7% 8% 7% 4% 3% 16% 18% 16% 14% 11% 11% 10% 10% 10% 8% 8% 10% 7% 15% 10% 8% 7% 2015 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 3m Apr 3m May 3m June 3m July 3m Aug 3m Sept 3m Oct In recent months those who import have shown more of an appetite for finance, becoming less likely to be a future would-be seeker of finance and more likely to be planning to apply. Those who only export are less likely to plan to apply and no more likely to be a FWBS, so are more likely to be a happy non-seeker of finance. * SEE SLIDE 20 Base : 3mths to Oct: 175/284/306/

22 Confidence amongst SMEs planning to apply for bank finance has varied during. Time series: Confidence (very/fairly) bank will agree to facility next 3 months by size emps 0-9 emps 58% 60% 41% 37% 66% 46% 70% 52% 73% 74% 47% 51% 81% 74% 60% 5 66% % 73% 60% % 53% 54% 56% 57% 67% 46% 42% 3 47% 53% 48% 53% 62% 60% 50% 53% 61% 55% 56% 58% 58% 47% Overall Confidence Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 3m Apr 3m May 3m June 3m July 3m Aug 3m Sept 3m Oct In, 55% of applicants were confident of success, with confidence increasing in the latter half of the year. During confidence has been more volatile, driven by the 0-9 employee SMEs who remain less confident than their larger peers. The 47% confidence level in the 3 months to October is lower than has been seen since Q1 and will be monitored over coming months. Q238 Base : All planning to apply for new/renewed facilities 3mths Oct /193 22

23 emps Confidence for hypothetical applicants is more stable, but declined in early for those with 0-9 employees Time series: Confidence (very/fairly) bank would agree to facility next 3 months by size 80% 82% 84% 80% 80% 83% 81% 81% 78% 77% 78% 78% 0-9 emps 60% 64% 67% 68% 64% 62% 60% 61% 61% 61% 62% 60% 61% 65% 67% 6 65% 63% 61% 62% 62% 62% 62% 61% Overall Confidence Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 3m Apr 3m May 3m June 3m July 3m Aug 3m Sept 3m Oct 6 in 10 (61%) of those with no plans to apply to a bank for finance are confident of a hypothetical success. Larger hypothetical applicants remain somewhat more confident than smaller ones, where confidence has declined from 68% at the end of to 60% currently. Overall, hypothetical applicants are more confident than those with plans that the bank would say yes. Q239b Base : All not planning to apply for new/renewed facilities 3m Oct /

24 The proportion of SMEs that export has been broadly stable in but is somewhat lower in the latest 3 months Time series: Exporters emps 34% emps 21% 1-9 emps 0 emps All SMEs 5% 6% 8% 10% 10% 10% 7% 7% 11% 10% 10% 10% 11% 10% 11% Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 3m Apr 3m May3m June3m July 3m Aug3m Sept 3m Oct 1 17% The proportion of exporters increased from 6% in 2012 to 10% in 2014 and In, the proportion exporting was slightly lower (8%), but around 1 in 10 are exporting in. The proportion of the largest SMEs exporting has declined during. Q223 Base : All respondents 3m Oct: /1383/1299/613 24

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