SME Finance Monitor. Key highlights Q An independent report by BVA BDRC, September 2018

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1 SME Finance Monitor Key highlights Q An independent report by BVA BDRC, September 2018

2 The SME Finance Monitor Q This survey was commissioned to provide a robust and respected independent source of information on the demand for, and availability of, finance for SMEs in the UK. Over 140,000 SME interviews have been conducted since the survey started in Q2 2011, across 29 waves of interviewing. The report and supporting data is made available to all interested parties as a basis for decision making and strategy setting. It is used by Government, the Bank of England, the banks, trade bodies and academics. Data can also be analysed by sector, region and demographics and over time Find out more at The study covers: Borrowing events in the past 12 months The appetite for new/renewed facilities The outcome of applications made Reasons for not borrowing Future plans, including demand for future finance Awareness of Taskforce, and other initiatives such as the Business Growth Fund SMEs are not a homogenous group smaller SMEs in particular can behave very differently from their larger peers. 2

3 8 in 10 SMEs are profitable, 4 in 10 have grown and almost half plan to grow. The larger the SME, the more likely these events Since 2015, a stable 8 in 10 SMEs reported making a profit (78%-87% by size of SME) A stable 4 in 10 SMEs have grown (39% - 64% by size of SME) The proportion planning to grow has improved somewhat since 2016 to 47% currently (44%-81% by size of SME) % predicting growth in next 12 months 81% emps emps 1-9 emps 0 emps 67% 59% 54% 46% 64% 55% 44% All SMEs 49% 47% 45% 43% 45% 47% H Q91 all SMEs 3

4 Looking at growth another way, a quarter of SMEs say the business has developed quite a bit in the last 3 years, while 1 in 10 has retrenched to the core business NEW: Way business has changed in last 3 years H % Developed quite a bit, doing new things 24% 28% 38% 39% 63% Recognisably the same business 65% 62% 54% 55% 11% All SMEs Retrenched to focus on core business 11% 10% 7% 6% 0 Emp 1-9 emp emp emp SMEs that have developed their business are more likely to have been innovative (44%), to be planning to grow (63%) and planning any growth activities (57%) Q88 Base : H1 18 All respondents excl Starts /2521/2852/1391 4

5 Since 2012, fewer SMEs of all sizes have innovated, with fewer new products/services developed and fewer improved business processes Annual time series: Business management Innovation 2012 H % 55% 54% 54% 55% 57% 54% Plan New product 17% 14% Improved process 35% 27% 40% 10% 38% 37% 37% 36% 34% 13% 16% 17% 14% 16% 12% 11% 32% 14% 9% Innovate International Mentors Any innovation 2012 H All 40% 32% 0 employees 36% 28% 1-9 employees 49% 39% emps 60% 48% H emps 70% 55% In 2012, 40% of SMEs innovated, ranging by size from 36% with 0 employees to 70% with employees. Since then the proportion has declined, to 32% in H1 and 28-55% by size of SME Q84 Base : All SMEs H

6 34% of SMEs use external finance. Most (23%) only use core forms of finance (loans, overdrafts and credit cards) Annual time series: Currently using external finance emps emps 74% 70% 76% 1-9 emps 58% 54% 0 emps 38% 39% 31% All SMEs 44% 41% 37% 37% 37% 38% 34% H Overall use of external finance is driven by the behaviour of 0 employee SMEs. Their use of external finance fell from 38% in 2012 to 32% in 2014 and has been stable since (32% Q2 18). Fewer than 1% of SMEs reported using crowd funding/peer to peer lending or single invoice finance Use of finance for the 3 months to August 2018 is 39%, back to previous levels Q15 all SMEs 6

7 Half of SMEs met the definition of a Permanent non-borrower, with no apparent appetite for finance, ranging from 51% of 0 employee SMEs to 21% of those with employees Annual time series: Currently using external finance and Permanent non-borrowers Permanent nonborrowers 34% 40% 43% 47% 47% 47% 49% SMEs using external finance 44% 41% 37% 37% 37% 38% 34% H % of 0 employee SMEs are PNBs 42% of SMEs with 1-9 employees 31% of SMEs with employees 21% of SMEs with employees PNBs are: As likely to be profitable or hold 10k+ of credit balances Less likely to plan to grow or to be innovative Q15 all SMEs 7

8 A minority of SMEs had applied for new/renewed finance and the proportion has declined over time Annual time series: Type 1 applications for new or renewed funds emps emps 1-9 emps 19% 19% 16% 0 emps 9% All SMEs 11% 8% 8% 7% 5% 5% 4% H % 5% 4% 3% Using the new questions, 4% of SMEs reported a Type 1 borrowing event, with relatively little variation by size of SME. 2% made an application as the result of having a need for funding and a further 2% had another new/renewed application in the last 12 months Q26 Base : All respondents / NEW DEFINITION Q Q31/51 8

9 Applications were typically to the main bank and for a loan or overdraft. 85% of applications were successful All Type1a/b applications reported in H % total 67% applied to their main bank 17% to another existing provider 7% to a new provider 4% to an online platform 5% elsewhere 72% Offered what wanted and took it Have facility after issues Different product from provider 30% applied for a bank overdraft 30% for a bank loan 8% for leasing 7% for a commercial mortgage 6% for a credit card 11% 2% 4% 12% All applications Offered but declined No facility All Type 1a/b applications

10 Demand issues: Very few SMEs had been Would-be seekers who had wanted to apply for finance but felt something had stopped them. Annual time series: Borrowing profile in 12 months prior to interview Had any event Would be seekers Happy non-seekers 23% 17% 16% 17% 13% 15% 15% 6% 5% 3% 2% 2% 2% 10% 68% 77% 79% 80% 84% 83% 83% Event in: H1 18* Would-be seekers are typically either discouraged from applying, or put off by the process of borrowing. A quarter of Happy non-seekers are using finance, but haven t wanted to apply for any (more) in the last year Pastfin Base : All respondents 10

11 Demand issues: SMEs have other ways of accessing funds through credit balances, trade credit and injections of personal funds Annual time series: 10k or more of credit balances held over time emps 77% 80% 82% 81% 82% 90% 91% emps 1-9 emps 0 emps All SMEs 66% 66% 68% 70% 72% 73% 73% 32% 33% 10% 10% 38% 14% 41% 41% 17% 14% 44% 18% 41% 15% 16% 17% 20% 24% 22% 25% 22% H % of SMEs hold 10k or more of credit balances, 36% receive trade credit and 28% reported an injection of personal funds 36% of SMEs receive trade credit: 31% of 0 employee SMEs 48% of 1-9 employees SMEs 63% of employee SMEs 73% of employee SMEs 31% of SMEs said that their need for external finance was reduced by either trade credit and/or 10k+ of credit balances (25%- 67% by size of SME) Q117 Base: All respondents excl DK H

12 Demand issues: Attitudinally, SMEs are twice as likely to make plans based on what they can afford (79%) as they are to be happy to borrow to help the business grow (33%) All attitudes to finance H % agree 79% 73% 51% 51% 50% 43% 38% 33% 27% 19% 11% 11% 10% 6% 8% 3% 52% 54% 40% 40% 40% 37% 30% 30% Plan on what can afford Accept slower growth Cost of credit discourage Future uncertain so cautious Never think to use more finance Prepared to take risks to succeed Difficult for us to get finance Happy to use finance to grow 16% of SMEs were happy to use finance to grow but thought it might be difficult for them to get finance. There was little variation by size, but amongst Would-be seekers, 37% agreed with both statements Q96 all SMEs 12

13 Demand issues: 3 in 10 SMEs (31%) rated one or more of these Top 3 factors as major obstacles in H1 2018, up from 22% in 2016 Time series: % Rating each a major obstacle for next 12 months Legislation/regulations Economic climate Political uncertainty 34% 27% 13% 13% 12% 17% 13% 11% 12% 10% 10% 10% 15% 14% 14% 18% 15% 16% H All three issues were mentioned more individually in H than in 2016 with net mentions of any of the three increasing from 22% to 31%. Q93 Base : All SMEs 13

14 14% of SMEs trade internationally. These SMEs are more likely to be innovative and growing, but also have concerns and their appetite for finance has declined Characteristics of international SMEs H All SMEs International SMEs 41% 55% 47% 60% 32% 55% 9% 15% 20% 22% 12% 16% Have grown Plan to grow Innovation Plan to apply Economic climate Political uncertainty International SMEs are more ambitious and more likely to be innovative. Since the referendum, they have become more concerned about the economy and political uncertainty, and their appetite for finance has declined from 21% in 2016 to 12% Various Base : All SMEs H

15 SME Finance Monitor - Key findings SME performance and sentiment has not changed dramatically overall since 2016, albeit there are some signs of concern, especially for international SMEs Finance applications are typically to the main bank and for a traditional product. Most resulted in a facility. Access to finance has become increasingly a demand rather than a supply issue. There is no single silver bullet to explain it, but credit balances, a self-reliant attitude and low awareness of some financial products could all be playing a part 15

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