Commenting on the findings, Emmanouil Schizas, ACCA senior economic analyst, said: 'Two worrying trends emerge from the SME Finance Monitor findings. First, UK SMEs are becoming less profitable; second, fewer are applying for new or renewed loans and overdrafts. ACCA’s own analysis of loan applications confirms that in the past a small number of cash-rich, profitable and growing businesses used to drive a disproportionate share of the demand for finance, but no longer do so. While some of these larger SMEs might be sitting on piles of cash and seeing out the difficult economic conditions, declining profits could affect everyone’s access to finance in future.
'Of the few SMEs who are seeking new finance, even fewer take advice prior to applications, which could make a big difference in securing finance: asking for the wrong product, or the wrong amount of money, can get in the way of success. For the first time since these surveys began, one in five applicants for new finance didn’t get a facility straight away but needed to provide additional clarifications and assurances and negotiate with the bank. Businesses need professional advice to navigate this process.
'The Monitor also reveals that, in more than half of UK SMEs, owners' private finances and those of the business are overlapping through cash injections or the use of personal banking accounts. While this has often been necessary, the overlap needs to be managed carefully with the use of appropriate financial advice.
'Building financial capabilities in-house is at least as important as taking advice. The SME Finance Monitor has consistently shown that SMEs’ access to bank lending is more secure when they have financially trained staff running their finances, produce regular management accounts, avoid unauthorised overdrafts, and can negotiate good credit terms with their suppliers. Businesses can’t achieve all of this by dropping their accountant a line a week before they see the bank.'
On SME awareness of Funding for Lending Scheme:
Emmanouil Schizas said: 'Early findings suggest that Funding for Lending Scheme could help address some of the problem of discouraged demand for finance among SMEs. Although only a quarter of all SMEs are aware of the scheme, this is still better than the awareness rates most established access to finance schemes have achieved so far. Among businesses hoping to borrow in the future, awareness is even higher. The SME Finance Monitor findings even suggest that seven per cent of the SMEs classed as 'Permanent Non Borrowers' (the businesses that have not borrowed in the past and show no appetite for borrowing in the near future) could be enticed to borrow now as a result of the FLS - especially micro-enterprises. This is equivalent to over 110,000 businesses that would otherwise not be looking for loans or overdrafts.
'It's hard to define discouraged borrowers, but we do know from the Monitor data that there are plenty of SMEs who aren't looking to borrow in the near future despite having an identified need for finance. Nearly half (45 per cent) of these SMEs thought they would be turned down by the bank, which is unrealistically high – even if all of this demand were for entirely new funds, only 37 per cent would end up with no facility.
'Finally, the Monitor findings suggests that about two-thirds of businesses aware of the scheme are not aware of what their banks are doing about it. We hope individual banks will do their part and continue to actively market their offering. In the meantime, the British Bankers Association (BBA) has prepared an excellent resource for business, which can be found on the Better Business Finance website, and outlines what each of its members is offering under the scheme.'