Overall SME confidence in lending improves but applications static

Posted on 7 Mar 2013 by Tim Brown

Confidence among Britain's small and medium-sized firms (SMEs) about the chance of successfully applying for bank financing improved in the final quarter of 2012, according to the SME Finance Monitor released today.

The report covering the fourth quarter of 2012 showed that, of those businesses planning to apply for finance, 43% of prospective applicants were confident the bank would agree to their request, up from 33% in Q3 2012. This improvement follows a series of declining confidence scores over recent quarters.

“It’s good news for growth that more lending applications from small and medium-sized firms are being approved by banks,” said Matthew Fell, CBI Director for Competitive Markets.

“More SMEs now know about the Funding for Lending initiative but the Government must work even harder to improve awareness and access to this, and other finance support, by creating a new one-stop-shop under the Business Bank.”

Despite this improvement there was little change in the number company’s looking for finance. Of the SMEs interviewed in Q4 2012, 14% planned to apply for new or renewed finance in the next 3 months, the same number as reported in Q4 2011.

Indeed only 21% of SMEs reported any borrowing ‘event’ in the previous 12 months to Q4 2012, down slightly from previous quarters and the equivalent quarter of 2011 (23%).

“More data on SME lending brings more of the same story of discouraged demand hampering firms’ ability to grow,” said Ms Lee Hopley, Chief Economist at EEF, the manufacturers’ organisation. ““The banks deserve some credit for committing to a number of actions to improve their relationship with SMEs. But making commitments is not an end in itself – we need these to start improving the relationship.”

Recent applications for new loans or overdrafts have been more likely to come from first time applicants and/or those with a worse than average external risk rating. The report showed that such SMEs remained less likely to have been successful and were unlikely to be aware of the appeals process.

A third of all new money applications made in 2012 were made by first time applicants. Half (51%) of all first time applicants for a loan or overdraft were rejected, compared to 21% of those applying for a new/renewed facility (but not their first) and 8% of those renewing an existing facility.

The new lending appeals process was introduced in April 2011. Of those SMEs declined funding, 14% of overdraft applicants and 8% of loan applicants reported being aware of the appeals process.