Finance Monitor sheds light on true demand for lending

Posted on 11 Jul 2011 by The Manufacturer

New data on lending supply and demand for SMEs in the UK draws comment from business lobbyists and manufactring trade organisations

CBI and EEF have been quick to leap on the results of the first quarterly SME Finance Monitor which show enduring barriers for small enterprises in accessing the finance they need to grow

Today’s release of the first BRDC Continental SME Finance Monitor is a milestone for the Business Finance Taskforce, a body established collaboratively by six of the UKs major lending institutions in summer 2010. The remit of this taskforce is analyses the dynamics of supply and demand between lending institutions and British business.

The independent research from BRDC is due to be released quarterly from now on and gives insight into SME finance requirements, their confidence in borrowing, and their ability to do so.

The first round of results shows that it is still the smaller firms within the SME catchment which struggle to fulfil lending requirements. Only 6% of surveyed SMEs reported that they had felt the need or the confidence to approach a bank for a business loan. Of these 66% said that they received the finance they asked for, this represent a decline from pre economic crisis levels.

Steve Radley, director of Policy at the manufacturer’s organisation, EEF – member organisation of the Taskforce – said in response to the results: “Following the financial crisis, the smallest companies have consistently fared worse in credit surveys and today’s report confirms that the smallest and youngest companies continue to face the most challenging lending conditions. It also supports a raft of anecdotal evidence that businesses are often far from positive in how they see their relationships with Banks.”

This mistrust between small firms and UK banking institutions was vocalised at Cranfield University’s National Manufacturing Debate in May this year where delegates called for a return of local banking intelligence where strong, long term relationship with local or regional bank managers ensured that the context of businesses within their communities and local economies was taken fully into account when loans were applied for. (A report on the findings of this year’s National Manufacturing Debate has been circulated with the July issue of The Manufacturer magazine.)

Commentary from the CBI also backed up this impression today. Katja Hall, CBI chief policy director, said: “It’s concerning that far fewer SMEs are confident about receiving the funding they apply for over the next quarter than those who actually got what they asked for last year. This shows that banks need to work hard to build stronger relationships with their smaller business customers.”

The proportion of SMEs successful in their applications for funding reflects recent research from accountancy firm, BDO into manufacturing confidence levels in the UK.

In BDO’s June report, Manufacturing 2020 that around 58% of researched manufacturers felt they would be able to access finance if need be. Confidence about the sector’s ability as a whole to access finance was much lower, around 9%.

It has been suggested that it is this low confidence in the ability of SMEs in general to access finance is contributing to discouraged demand.

Radley commented on this trend which was also revealed in the Finance monitor data: “While this survey simply provides us with a snapshot of experiences and intentions, it does shed some new light on levels of discouraged demand. A significant proportion of small companies is put off from approaching a Bank for external finance and we need to see this start to fall in the coming quarters.

“The overall message to the Banks and government is that there can be no let up in efforts to increase the availability of finance and stabilise the cost of credit. Improving lending conditions for such a diverse group of businesses requires action on multiple fronts. These should focus on rebuilding sources of finance beyond bank debt, boosting competition in the banking sector and improving real business understanding across the financial sector.”