A poor reputation and expensive: UK SMEs reject payday loans

In fact, 91 per cent of SMEs with an appetite for borrowing claim it is either ‘fairly unlikely’ or ‘very unlikely’ that they would consider a payday lender as a provider of finance. Just 6 per cent said they were ‘likely’ to consider using one.

The study, from BDRC Continental’s Business Opinion Omnibus, is particularly timely as one major payday lender has recently announced it is to launch a service providing credit for small businesses. BDRC Continental’s research reveals four key reasons why the UK’s small businesses are rejecting such short-term loan specialists. Reasons given for not wanting a payday loan are cost, which emerged as the most common deterrent to using a payday lender, followed by 31 per cent who ‘prefer to stick to traditional suppliers’ and a quarter who were put off by the fact that ‘payday lenders have a poor reputation’.

Commenting on the findings, James Dunleavy of BDRC Continental says: “Despite the tough economic climate, it’s clear that the UK’s SMEs do not appear interested in using a short-term fix to the long-term challenge of financing their business. In reality, there are signs that payday lenders may have mis-read both the appetite and need of SMEs for additional finance on any terms. SMEs are telling us that they have reservations about using payday loans and a good proportion prefer to work with traditional suppliers. This is consistent with the findings of the most recent SME Finance Monitor study from BDRC Continental, which found that most SMEs that applied for finance were successful – an encouraging sign for this important sector of the British economy.”

In the Q4 2012 SME Finance Monitor study into the availability of finance for the UK’s SMEs, BDRC Continental found that most SMEs with an appetite for borrowing that applied for finance were successful. In fact, 79 per cent of those businesses that applied for a new / renewed overdraft facility subsequently received one, while 63 per cent of those that had applied for a new / renewed loan facility were also granted one.