Latest SME Finance Monitor Shows Recovery on Course

Figures for the first quarter of 2014 show that economic conditions continue to be less of a barrier to business growth, with only 20 per cent of small business owners citing the current climate as a significant barrier to growth.

However, the report highlights the continuing slide in the number of small businesses turning to loans and overdrafts as a way to fund future business growth. A third of firms surveyed reported using external finance, while 30 per cent of businesses questioned had looked to inject their own funds into their business in the past 12 months.

In addition, the most recent findings identified 48 per cent of small businesses as ‘permanent non-borrowers’ choosing to shun all forms of external finance to fund their future development. More importantly, over half of start-up firms surveyed (51 per cent) planned to remain free of any banking restraints, suggesting a continuing long-term shift away from seeing debt-based finance as a key element for funding a new venture.

Commenting on the report findings, Phil Orford MBE, Chief Executive of the Forum of Private Business, said: “The latest figures from the survey show a continued fall in the number of businesses that see the economy as a barrier to investment, but a continued decline in small firms looking to outside sources for future funding.

“In 2011 51 per cent of small businesses used external finance and 30 per cent were seen as ‘permanent non-borrowers’. 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 Treasury is looking at a key area of how to get more businesses approaching non-bank sources of finance, such as through the alternative business funding website. This is a great opportunity for businesses to look to finance growth through these new and robust alternatives to traditional bank finance.”