5 July 2012
Despite news headlines about banks’ reluctance to lend, SMEs are generally successful in their finance applications. But some could still do more to improve their chances.
The UK economy depends on SMEs
“According to the Department for Business, Innovation and Skills, UK SMEs provide 58.8% of all private sector jobs and generate 48.8% of all private sector turnover,” says Marcus Graham, a Moore Stephens’ corporate finance specialist. “Yet during the downturn, the banks have received a great deal of media criticism for holding back growth through an apparent reluctance to lend to SMEs.”
A number of recent surveys provide some insightful statistics on SMEs’ expectations and experiences. “It’s worth examining these to see what lessons we draw about the world of SME finance,” Marcus says.
Olympic optimism amongst SMEs?
There are strong signs that business is looking up for SMEs in the run up to the London Olympics. Confidence appears to be soaring. SMEs report that they are optimistic about their business situation and they expect increased orders in the next three months. But will this optimism last? Perhaps unsurprisingly, SMEs report that they expect political factors abroad to limit export orders in the next three months. However, even though SMEs may expect export orders to be limited at some level, they nevertheless expect increased exports in the next three months compared to the last quarter.
Most SMEs that apply for funding are successful
In common with previous quarters, the most recent survey analysis shows that most SME applicants for bank finance (loans and overdrafts) were successful. Some new evidence suggests that SMEs are even more successful at gaining other forms of external finance.
Avoiding the pitfalls and obtaining finance
Evidence suggests that SMEs are not maximising their chances of success when presenting themselves for borrowing. A minority of SMEs have heard of corporate finance advice, and the proportion of SMEs that have produced a formal business plan (33%) or that produce management accounts (44%) appears low.
SMEs could improve their chances of obtaining bank funding in three key ways:
• seeking advice when considering borrowing to give the best chances of success;
• ensuring all documentation is bank ready;
• remaining positive: banks continue to approve most loan applications.
For a further information please download our latest SME Finance Review factsheet.