The main effect of Brexit so far has been to depress SMEs’ appetite for seeking external finance to grow. The latest BDRC Continental SME Finance Monitor shows that although the vote to leave the EU has diminished confidence levels, SMEs are taking a watching brief, waitng to see how things shake out.
As for the drop in appetite for finance, according to BDRC, that “Does not appear to be a confidence issue for most SMEs, rather a preference to use their own resources or accept a slower level of growth that they can self-fund.”
That point is confirmed by the fact that, in the second quarter 2016, “|8 in 10 SMEs (80%) agreed that their plans for the business were based on what they could afford to fund themselves, with limited variation by size of SME”
The bank that says ‘yes’
Interestingly, a new question for 2016 revealed that 7 in 10 SMEs (71%) agreed that they would accept a slower rate of growth they funded themselves rather than borrow to grow more quickly, while almost half (47%) agreed that they never thought about whether their business should use (more) external finance. Both these views were expressed more strongly by smaller SMEs.”
The survey also reveals, somewhat counter-intuitively, that a large number of SMEs that do apply for finance are successful. 81% of applications made for new or renewed loan or overdraft facilities in the 18 months to Q2 2016 were successful. This proportion has increased over time: in the 18 months to Q4 2012, 69% of applications were successful.
Virtually all renewals of existing facilities were successful. The increase in success rates has come from a higher success rate for new money applications (from 54% in the 18 months to Q4 2012 to 66% in the 18 months to Q2 2016). This includes increased success rates for first time applicants (41% to 61% over the same period) especially first time overdraft applicants
Shiona Davies, Director at BDRC Continental, commented: “The lack of appetite for external finance isn’t based on a concern about securing approval, as most SMEs are confident the bank would say ‘yes’ if they were to approach them for a facility. When it comes to applications, the reality is that 8 in 10 of those who do apply end the process with a loan or overdraft.”