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SME demand for external finance falls

The proportion of small-to-medium sized enterprises (SMEs) using some form of external finance - such as a bank loan or overdraft facility - fell to 39 per cent in the first quarter of 2013, according to data from market research firm BDRC Continental.

The Q1 figure represents a 2 per cent fall on the previous quarter and an 11 per cent decline since the first quarter of 2012.

The BDRC SME Finance Monitor found that, of the SMEs interviewed:

  • 39 per cent reported using some form of external finance
  • 41 per cent do not use external finance and show little inclination to do so in future
  • 76 per cent had not sought a new/renewed facility and also said that nothing had stopped them from doing so
  • 7 per cent said something in particular stopped them applying for a loan or overdraft facility, with many put off by the process or simply feeling 'discouraged'
  • 10 per cent of overdraft applicants and 20 per cent of loan applicants sought advice, typically from an accountant, before making their application
  • 15 per cent planned to apply for new or renewed finance in the next three months
  • 27 per cent were aware of the Government's Funding for Lending Scheme
  • 18 per cent said such schemes made it more likely they would apply for finance
  • 14 per cent had been approached by a bank in the previous three months, expressing a willingness to lend

The Forum of Private Business (FPB) said that, while the Q1 figures weren't particularly surprising, "eyebrows may be raised" if the decline continues into the second or third quarters of the year.

The FPB chief executive, Phil Orford, added: "It seems likely that the banks are still licking their wounds, and that may be the case for some time to come yet, but this pattern of decline can't continue if we are to have meaningful growth.

"What seems highly likely now is that any recovery this summer is going to come largely from firms spending their own stockpiled cash, but this isn't sustainable in the long term. While three quarters are happy non-seekers of finance, there will come a point when they do need the help of lenders to grow. That could be the crunch point and be a problem in the making for years to come."