The Analysis News & Opinions
Research shows mixed finance expectations for SMEs
Most SMEs are planning to grow and profits are stable, but appetite for finance remains limited, according to new research published last month. The VA BDRC SME Finance Monitor
provided further updates on SME sentiment as negotiations over Brexit continue. Shiona Davies, director at BVA BDRC,
said: “We are living through uncertain times and this is being reflected amongst SMEs. They remain profitable, but more see improving profit margins as a priority. An increasing proportion are planning to grow, but there is also an increasing gap between growth achieved and expected. Use of finance has increased, yet appetite for finance and new applications remains limited. “Most applications are made to the main
bank for loans or overdrafts, and most of those who apply are successful, but there are signs of more SMEs considering self-funding alongside, or instead of, an application for finance. Future appetite for finance remains stable, although an increasing minority of SMEs are looking to reduce their use of external finance.”
Key findings included:
l More SMEs are planning to grow, while stable proportions have been profitable and the proportion being innovative is no longer declining. More SMEs see the economic climate and political uncertainty as barriers to running their business. l In the first half of 2019, 50% of SMEs planned to grow in the next 12 months, increasing by size from 48% of those with zero employees, to 74% of those with 50 to 249. l There has been less of a change in the proportion of SMEs that have grown (36% in the first half of 2019) leading to a wider ‘gap’ between the two metrics. An increasing minority of SMEs (20% in the first half of 2019) reported their business had declined in size, back to levels seen in 2012. l In total, 82% of SMEs reported making a profit for the first half of 2019 and this proportion has been stable since 2015. More SMEs saw improving profit margins as a key priority, increasing from 30% in 2018 to 36% in the first half of 2019. l Over time, the proportion of SMEs that had either significantly improved an
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area of the business and introduced a new product or service declined from 40% in 2012 to 33% in 2018, and across all size bands. In the first half of 2019, however, the decline was halted as 36% had been innovative, due to more SMEs improving an area of the firm. l In the second quarter of 2019, 25% of SMEs saw political uncertainty and government policy as a major barrier to their business. SMEs with 50 to 249 employees were more likely to see this as a barrier (35%) and, over time, more SMEs have seen this as a barrier (from 10% in 2015 to 19% in 2018 and 25% for the second quarter). l There has also been an increase in the proportion citing the economic climate as a barrier, from 13% in 2015 to 17% in 2018, and 22% in the second quarter of 2019, with little variation by size of SME (19% to 23% in the second quarter of 2019). With an increase in the use of finance
in the first half of 2019, there are now more SMEs using finance than meeting the definition of a permanent non-borrower, but willingness to borrow to help the business grow remains limited: l In the first half of 2019, 46% of SMEs were using external finance, up from 36% in 2018. This was due in particular to more use of overdrafts (19% in 2018 to 23% in the first half of 2019) and credit cards (14% to 19%). l This means that, in the first half of 2019, and for the first time since 2014, there were more SMEs using finance (46%) than SMEs meeting the definition of a permanent non- borrower (41%). Permanent non-borrowers are SMEs that are not using finance and show no inclination to do so – they are as likely as their peers to be profitable and innovative and more likely to hold £10,000 of credit balances, but they are less likely to be planning to grow. l Despite the wider use of finance, SMEs’ attitudes to finance have not yet softened – in the first half of 2019, 29% agreed that they were happy to borrow to grow, down from 32% in 2018 and the lowest level recorded to date.
October 2019
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