Raising Finance

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SMEs bullish about profits and finding finance

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SMEs are feeling more optimistic about business prospects than for well over a decade, and are having more success in landing growth finance.

The latest SME Finance Monitor from insight agency BDRC Continental found that 80 per cent of SMEs interviewed in the second quarter this year reported making a profit in the last trading period. That’s up from 69 per cent in the second quarter last year and is the highest level seen in the 15 year history of the Finance Monitor.

It found that only 14 per cent of SME leaders said they saw the current economic climate as a major barrier, down from 37 per cent at the start of 2012.

Only five per cent of SMEs saw access to finance as a barrier to growth despite well publicised headlines about the squeeze on bank lending.

Indeed, the survey said that 84 per cent of overdraft applications made in the 18 months to the second quarter of 2015 ended in a facility up from 72 per cent in the same period last year.

An additional 69 per cent of loan applications made in the 18 months period got accepted, up from 56 per cent.

First time applications achieved 58 per cent success, up from 37 per cent in the 18 months to the fourth quarter of 2013.

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Three-quarters of successful overdraft applicants and just over half of successful loan applicants described the process as “low effort”.

SMEs are also more aware of alternative finance providers than ever before. Just over a third or respondents, 36 per cent, said they were aware of crowdfunding, up from 24 per cent in the second quarter last year. However only one per cent of SMEs actually used crowdfunding in the year to the second quarter 2015.

Intriguingly the survey found that half of SMEs are so-called “permanent non-borrowers” (PNBs). These are companies which are not using any form of external finance and have not used it in the past five years. Firms classified in this way have also not applied, or wanted to apply for external finance in the past year and have no plans or wish to apply for finance in the short-term.

BDRC said the number of PNBs was “increasing all the time” and that these firms were performing well and were more likely to make a profit and hold a credit balance of over £5,000 than SMEs using external finance.

However, these companies were less likely to be planning to grow in the next 12 months and less likely to be looking at international growth or be innovative.

Shiona Davies, director at BDRC Continental, said: “We have continued to see higher application success rates and general business optimism. There is increasing use of and demand for finance amongst SMEs. PNBs are an interesting group – they are profitable and almost as likely to have grown as their peers. They appear to be doing well, but the question is, could they be doing even better through using external finance?”

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