banking 47
Banks support for SMEs – Q2 2015
It’s a question of the articles you read and the statistics that you view as to your perception of how the SME sector is coping with its banks. On the one hand you have a recent headline in the business section of one of our 'broadsheets' stating that SMEs are frustrated as they wait for the bank referral scheme to get underway. This gives the impression of pent-up demand not being fully satisfied by lenders, writes Jim Meechan, consultant, Pitmans LLP
The referral scheme was announced by the Government over a year ago and this would make lenders suggest alternative funding options to those refused credit. The director of small business loans at Business Boost Capital stated that the drop in lending demonstrates how critical it is that SMEs get the funding they need. Alternative lenders are also lobbying hard for the Government's British Business Bank which will spearhead the initiative to accelerate its introduction as they obviously see this as a potential route to new business opportunities.
If you then change tack and have a look at the latest figures produced by the BBA, the picture is slightly different. The BBA states that the majority of businesses who approach their bank for finance are successful, while in cases where applications are not approved there is a process in place that allows businesses to appeal the decision.
Of SMEs applying for bank finance the BBA reports that approval rates are around 80% for smaller businesses and 90% for medium-sized. The second quarter saw 31,500 loans approved for SMEs in the UK. The BBA has segmented the sector showing smaller loans less than £2 million with medium sized of between £2m and £25m.
In Q2 2015 the banks approved £5.6 billion of new loan facilities (11% below Q2 2014) and £1.2b of new overdraft facilities (a 1% increase on Q2 2014). Of the £6.8b total, £2.5b of new loans and overdraft facilities was for smaller businesses and £4.3b was for medium businesses.
One of the reasons for the 11% fall in new loan facilities may well be the cash position of some of the SMEs. The BBA report that at the end of Q2 2015 cash held by SMEs in deposit and current accounts amounted to £157b, a 9% increase in balances from the end of June 2014. The growth of cash in accounts is moderating business demand for borrowing.
If the 'snapshot' of Q2 2015 is expanded to look at the overall picture of lending to SMEs it suggests quite a bit of head room for businesses to draw upon. Figures available from the BBA up to the end of June 2015 show total borrowing facilities to SMEs amounted to £111.1b. Structured term loans accounted for 79% of this figure with overdraft use accounting for 9% with facilities undrawn but available amounting to 12%. The use of overdraft facilities being utilised is only running
THE BUSINESS MAGAZINE – THAMES VALLEY – OCTOBER 2015
at a rate of 53% leaving 47% of agreed borrowing commitments available as 'headroom funding' for businesses to draw on.
Perhaps another reason for the 11% drop in demand from Q2 2014 to Q2 2015 is the view from some SME business owners that borrowing for borrowing’s sake may not generate better results than making smaller, incremental investments as the business expands. In the latest survey of 5,000 SMEs by SME Finance Monitor, 49% of SMEs are classed as “permanent non-borrowers”. The majority of non-borrowers are profitable and hold credit balances and are almost as likely to have posted growth over the past year as their indebted peers.
There is a lot of data available and a variety of views available. Borrowing money does have its advantages; it helps establish a positive credit rating for the business, for example. There is now a wealth of borrowing options out there that don’t involve sky-high interest rates and fees.
If you need any assistance with regard to business finance we at Pitmans have a wide range of experience along with a wealth of contacts within the major UK lenders as well as other monetary financial institutions and we will be happy to discuss any requirements that you may have.
Details: Jim Meechan 0118-9570220
jmeechan@pitmans.com www.pitmans.com
www.businessmag.co.uk
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