Businesses continue to shun debt finance

The SME Finance Monitor found that just one third of businesses sought external funding in Q1 this year, down from 40 per cent in Q4 2013.

It also found that 48 per cent of businesses fell into the definition of “permanent non-borrowers”, and more than half of startups plan to remain debt-free for the foreseeable future.

It’s worth noting that the stats are skewed significantly by those businesses without employees. The proportion of businesses employing 10-49 employees who have used external finance has actually gone up slightly from the previous quarter to 66 per cent. For those employing 50-249 people, the figure has dropped significantly to just 61 per cent.

Phil Orford, chief exec of the Forum of Private Businesses, said: “Today’s figures show a clear reversal in the number of businesses looking to the banks and other external sources moving forward.

“Although the continuing mistrust of financial institutions is understandable, it is vital that small businesses are able to take the opportunities that are presented to them and external finance should have a significant role to play in helping businesses fully realise their growth potential.”

The news follows the publication yesterday of Business Banking Insight, a new and fairly comprehensive survey of 5,000 businesses which reveals their perception of Britain’s banks’ service quality.

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