By Shiona Davies, Director at BDRC Continental

BRDC Continental published thelatest edition of the SME Finance Monitor ( for Q2 2015 on September 3rd. Investigating the availability of,and demand for, external finance for UK small and medium-sized enterprises (SMEs), this independent study is the largest and most frequent survey of its kind in the UK and is available free to all interested parties.

The overall picture at the end of Q2 is that SMEs continued to report positive performance indicators, and success rates for loan and overdraft applications have continued to improve. At the same time, use of external finance and demand for new facilities has changed little. However, once the 49% of SMEs that are “Permanent non-Borrowers” (PNBsNote 1) are excluded, there are signs that use of finance amongst the remaining SMEs is picking up.

An increasing proportion of SMEs reported a profit as worries over the economy ease

80% of SMEs interviewed in Q2 2015 reported making a profit in their last trading period. This has increased steadily over time (it was 69% in Q2 2013) and is now at the highest level seen to date on the SME Finance Monitor. Meanwhile, from a peak of 37% at the start of 2012, the proportion of SMEs seeing the current economic climate as a major barrier to their business has declined steadily to 14% in Q2 2015. Only 5% of SMEs considered access to finance a barrier, a figure that is also declining over time.

Loan and overdraft success rates reached their highest level to date

84% of overdraft applications made in the 18 months to Q2 2015 resulted in a facility. This has improved steadily (it was 72% for the 18 months to Q2 2013). In addition, 69% of loan applications made in the 18 months to Q2 2015 resulted in a facility. This has also improved steadily over time (it was 56% for the 18 months to Q2 2013).This improvement was seen not only amongst the larger, more established businesses but also amongst those who in the past have found it more difficult to access finance, such as younger, smaller SMEs and those applying for their first loan or overdraft facility.

Use of and demand for external finance remains flat overall…

36% of SMEs used external finance in Q2 2015. This has stabilised after previous declines seen across all sizes and risk ratings of SME (46% were using external finance in 2011).In Q2 2015, 16% of all SMEs reported any loan or overdraft borrowing ‘event’ in the previous 12 months including the automatic renewal of an overdraft facility. This is stable over recent quarters, but lower than the one in four reporting an event when the Monitor began in 2011.

… due to the influence of the Permanent non-Borrowers           

Half of SMEs (49%) met the definition of a Permanent non-Borrower – an SME who is not using external finance and has no apparent appetite to apply for any – and this proportion is increasing over time across all sizes of business. Their increased presence masks signs of an increasing use of, and appetite for, external finance amongst the remaining 51% of SMEs who are non-PNBs. For 2015 to date:

  • An increasing proportion of non-PNBs are using external finance, 70% compared to 65%-68% between 2012 and 2014.
  • More non-PNBs reported a borrowing event, 33% up from the 28% reported in both 2013 and 2014 and almost back to the 35% reporting a borrowing event in 2012.
  • More non-PNBs planned to apply for finance in the next three months. At 24%, this has increased gradually from 21% in 2012.

The PNBs appear to be successful, but are perhaps less ambitious than non-PNBs

New analysis of this growing portion of the SME market shows these PNB businesses are performing wellbut aren’t necessarily as ambitious as non-PNBs:

  • PNBs are slightly more likely to report a profit (81%) than non-PNBs (76%).
  • They are as likely to hold credit balances of more than £5,000 (41% v 39%).
  • They are almost as likely to have grown in the past 12 months (38% v 42%), but are less likely to be planning to grow in the next 12 months (37% v 49%).
  • They are also somewhat less likely to be international (12% v 19%) and notably less likely to have innovated Note 2 (29% v 41%).

So in summary, there is much to be positive about with higher application success rates and general business optimism. This is not being matched by an increase in overall demand for finance, but this is due to the Permanent non-Borrowers – if they are set to one side we are starting to see increasing use of and demand for finance amongst the remaining 51% of SMEs. These PNBs are an interesting group – our new analysis shows them to be profitable, hold credit balances and almost as likely to have grown as their peers, yet they are less likely to be international, to have innovated or to plan to grow in the coming year. They appear to be doing well, but the question is, could they be doing even better through using external finance?


Note 1: Definition of Permanent non-Borrowers (PNBs): This means an SME that is neither using external finance nor used it in the past five years. Also, the SME has not applied for, or wanted to apply for, external finance in the past year and has no desire to apply for finance in the three months after interview.

Note 2: Innovation: Innovation means they have developed a new product or service, or significantly improved an aspect of the business, in the past three years.

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