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While it is encouraging to see that there has been no significant increase in the percentage of SMEs being discouraged from applying for bank funding, accessing it is clearly still a challenge for many SMEs
—Marc Fecher, chairman of Corporate Sector Network, ACCA

ACCA welcomes ‘sobering’ new figures on SMEs' Access to Finance

Demand for loans is falling while approval rates are - for now- on the rise, according to the largest-ever survey of SME access to finance called the SME Finance Monitor, prepared by independent consultants BDRC for the BBA Business Finance Taskforce.

ACCA (the Association of Chartered Certified Accountants) is one of the organisations involved in the design of the Monitor, which is a definitive record of smaller UK businesses’ access to finance. Each quarterly Monitor survey adds views from another 5,000 businesses to this growing record, allowing for deeper, more sophisticated analysis of SMEs and access to finance. 

Figures from the latest Monitor released yesterday show that SMEs’ demand for finance, especially overdrafts, is falling. In line with the banks’ claims that utilisation rates for overdraft facilities were at a record low, the survey found that businesses were increasingly likely to not renew existing facilities. Overall, only 7% of SMEs reported applying for a new loan or overdraft in the 12 months to September, against 8% in the 12 months to May 2011. 

Although discouraged demand is often cited as a reason for weakness in demand, the share of UK SMEs that would like to apply for funds but aren’t doing so has remained stable over the last two issues of the survey, while the share of SMEs that simply don’t believe borrowing is a good idea at the moment has risen significantly to 74% as the global and domestic economy continue to deteriorate.

Marc Fecher, Chairman of ACCA’s Corporate Sector Network and Corporate Finance partner at Kingston Smith LLP, comments: 'While it is encouraging to see that there has been no significant increase in the percentage of SMEs being discouraged from applying for bank funding, accessing it is clearly still a challenge for many SMEs, with 546,000 who wanted funding not even applying. Ensuring that sufficient working capital is available for a business is, more often than not, the responsibility of the accountant. We would really like to see more, rather than less, encouragement for SMEs to apply for much needed funding, and application processes simplified, to give wider access and stimulate growth.'

In fact, borrowers appear to be more likely to be discouraged if they have a concrete plan for using the funds than not. This is a worrying reversal which, ACCA believes, can only be addressed by making sure more SMEs have access to professional advice so that business planning can make them more, not less confident in their ability to raise funds. 

On the supply side, ACCA notes that approval rates can be misleading as applications for renewing existing facilities tend to be approved outright, while applications for first-ever facilities tend not to be, especially in the case of overdrafts. Instead, ACCA believes it is more important to focus on whether specific types of applicants are being unfairly penalised and whether such distortions can be addressed by policy. The following bullet points lists the factors that the Monitor has associated with failed applications:

Factors reducing the probability of approval (strong influences in italics)


  • First ever facility or increase in existing facility
  • Business has an above average external risk rating
  • Business is not profitable
  • Business is less than 5yrs old


  • First ever facility or increase in existing facility
  • Business has an average or above average external risk rating
  • Business is loss-making
  • Business is less than 5yrs old
  • Business is applying for a large loan
  • Business applied between April 2010 and March 2011

Fecher comments: 'This survey really highlights the gap between the ‘haves’ and the ‘have nots’. Of all overdraft applicants, 88% that had previously received funding were granted what they applied for; however, only 30% of first time applicants could say the same. The question is, how can banks be encouraged to lend more to this type of SME, which we see as a key source of employment and growth within the UK?'

ACCA also points to a number of worrying statistics derived from the Monitor about how smaller businesses are run, stressing that these could go some way towards explaining the trouble some are having in dealing with the banks:

  • Only 41% of SMEs produce management accounts on a regular basis and only 31% have a formal written business plan. 
  • Only 22% of SMEs had someone in charge of their finances who had any financial training whatsoever. Even among medium-sized businesses (50 to 249 employees), about a quarter didn’t have a financially trained person in charge.
  • Only 9% of SMEs that applied for an overdraft and 19% of businesses applying for a loan in the past year sought any advice beforehand. And 18% of all those who didn’t said they didn’t know who to turn to for advice.

ACCA stresses that taking professional advice makes sense even after an application is rejected. The Monitor findings suggest that almost half of all businesses that were offered overdrafts on unfavourable terms and about one quarter of those that were offered loans on unfavourable terms eventually managed to get a better deal after negotiating or shopping around. 

Controversially, BDRC’s analysis suggests that approval rates for loans (but not overdrafts) have picked up between March and September 2011 – a success of sorts for the much-criticised Project Merlin, the Government’s deal with the banks to increase lending to SMEs. 

Mr Fecher comments: 'The last two quarters appear to reveal an emerging trend indicating that loan approvals have increased from 57% to 73%; meanwhile, over the same period, the percentage of overdraft approvals has slightly deteriorated. This could be an active policy of the banks to increase lending, which should be commended; however, it is likely that these loans are offered on the basis of assets being provided as security. Our main concern with this is that younger and smaller companies without an asset base or track record will find it increasingly difficult to secure funding.'

Finally, ACCA notes that if Merlin was expected to release a massive amount of previously discouraged demand it will likely fail to do so: despite wide media coverage and policy debate, only 20% of SMEs had even heard of it as of September.