SMEs shun bank lending despite Government efforts

SME Finance Monitor shows lowest level of SMEs turning to their banks for financing amid on-going "mistrust" of lenders

Only a third of Britain’s small businesses have turned to their banks for financing in the past quarter, the lowest level on record, according to the latest data.
Despite the Government’s repeated efforts to boost bank lending for firms, the latest SME Finance Monitor found that 33pc of small firms reported using external finance, which includes banks loans, overdrafts and credit cards in the first quarter.
Instead 27pc said they regularly use trade credit while 30pc said they had used personal funds. BDRC, the consultants that have run the survey since 2010, said it was the lowest level for 12 quarters.
Almost half of SMEs (48pc) are now “permanent non-borrowers”, shunning all external finance options, the survey found, up from 41pc last year and 30pc in 2012.
Phil Orford, chief executive of the Forum of Private Business, said the figures “showed a clear reversal in the number of businesses looking to the banks and other external sources moving forward.” He said there was on-going “mistrust of financial institutions” but warned it was “vital” that small businesses are encouraged to use banks to “fully realise their growth potential.”
A separate survey to launch the Business Banking Insight (BBI), a new Government-backed website for SMEs to compare bank performances, also found on-going discontent with banks. The survey of 5,000 businesses found 85pc had not approached a bank to apply for credit during the past 12 months. Firms with less than 10 employees gave their banks an average satisfaction rating of just 60pc while with medium-sized firms, the score was 65pc. Firms gave the banks relatively low level ratings for value for money.
John Allan, National Chairman of the Federation of Small Businesses, said: “We expect is for the banks to use these results to up their game and work harder to support their business customers’ ambitions. While some are performing well, these results show there is still work to be done in a number of areas. Most important of these are to restore trust, increase transparency and to offer a better value for money proposition to their small business customers.”
George Osborne said the survey and the website would be a “powerful tool” for firms to judge the different banks “providing them with the means to see who’s up for the challenge and who isn’t.”
The Bank of England is due to release its latest Funding for Lending Scheme data today. The figures are expected to show that banks have used the scheme to boost their lending levels but not enough to satisfy small business groups.