SME Finance

Monitor

Key highlights Q2 2018

An independent report by

BVA BDRC, September 2018

Over 140,000 SME interviews have been conducted

since the survey started in Q2 2011, across 29 waves

of interviewing.

The report and supporting data is made available to

all interested parties as a basis for decision making

and strategy setting. It is used by Government, the

Bank of England, the banks, trade bodies and

academics.

Data can also be analysed by sector, region and

demographics – and over time

The SME Finance Monitor Q2 2018

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This survey was commissioned to provide a robust and respected independent source of information on the demand

for, and availability of, finance for SMEs in the UK.

Find out more at www.sme-finance-monitor.co.uk

The study covers:

•Borrowing events in the past 12 months

•The appetite for new/renewed facilities

•The outcome of applications made

•Reasons for not borrowing

•Future plans, including demand for future finance

•Awareness of Taskforce, and other initiatives such as the

Business Growth Fund

SMEs are not a homogenous group –

smaller SMEs in particular can behave very

differently from their larger peers.

49% 47% 45% 43% 45% 47%

2013 2014 2015 2016 2017 H1 2018

81%

64%

55%

44%

50-249 emps

10-49 emps

1-9 emps

0 emps

All SMEs

67%

59%

54%

46%

8 in 10 SMEs are profitable, 4 in 10 have grown and almost half plan to grow. The larger the SME, the more likely these events

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% predicting growth in next 12 months

Q91 all SMEs

• Since 2015, a stable 8 in 10 SMEs reported making a profit (78%-87% by size of SME)

• A stable 4 in 10 SMEs have grown (39% - 64% by size of SME)

• The proportion planning to grow has improved somewhat since 2016 to 47% currently (44%-81% by

size of SME)

Looking at growth another way, a quarter of SMEs say the business has developed quite a bit in the last 3 years, while 1 in 10 has retrenched to the core business

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NEW: Way business has changed in last 3 years H1 18

11% 10% 7% 6%

65% 62%

54% 55%

24% 28% 38% 39%

0 Emp 1-9 emp 10-49 emp 50-249 emp

Q88

Base : H1 18 All respondents excl Starts 8092 1328/2521/2852/1391

11%

63%

26%

All SMEs

Developed quite a bit, doing new things

Recognisably the same business

Retrenched to focus on core business

SMEs that have developed their business are more likely to have been innovative (44%), to be

planning to grow (63%) and planning any growth activities (57%)

55% 55% 54% 54% 55% 57% 54%

10% 13%

16% 17% 14% 16% 14%

40% 38% 37% 37% 36% 34% 32%

12% 11% 9%

Since 2012, fewer SMEs of all sizes have innovated, with fewer new products/services developed and fewer improved business processes

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Annual time series: Business management

Q84

Base : All SMEs H1 2018 9000

International

Plan

2012 2013 2014 2015 2016

In 2012, 40% of SMEs innovated, ranging by size from 36% with 0 employees to 70% with 50-239

employees. Since then the proportion has declined, to 32% in H1 and 28-55% by size of SME

2017

Innovate

Mentors

H1 18

Any innovation 2012 H1 2018

All 40% 32%

0 employees 36% 28%

1-9 employees 49% 39%

10-49 emps 60% 48%

50-249 emps 70% 55%

Innovation 2012 H1 2018

New product 17% 14%

Improved process 35% 27%

44% 41% 37% 37% 37% 38% 34%

2012 2013 2014 2015 2016 2017 H1 2018

34% of SMEs use external finance. Most (23%) only use core forms of finance (loans, overdrafts and credit cards)

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Annual time series: Currently using external finance

Q15 all SMEs

50-249 emps

10-49 emps

1-9 emps

0 emps

All SMEs

Overall use of external finance is driven by the behaviour of 0 employee SMEs.

Their use of external finance fell from 38% in 2012 to 32% in 2014 and has been

stable since (32% Q2 18). Fewer than 1% of SMEs reported using crowd

funding/peer to peer lending or single invoice finance

76%

54%

39%

31%

74%

70%

58%

38%

Use of finance for the 3

months to August 2018 is

39%, back to previous levels

44% 41% 37% 37% 37% 38% 34%

34% 40%

43% 47% 47% 47% 49%

2012 2013 2014 2015 2016 2017 H1 2018

Half of SMEs met the definition of a Permanent non-borrower, with no apparent appetite for finance, ranging from 51% of 0 employee SMEs to 21% of those with 50-249 employees

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Annual time series: Currently using external finance and Permanent non-borrowers

Q15 all SMEs

• 51% of 0 employee SMEs are PNBs

• 42% of SMEs with 1-9 employees

• 31% of SMEs with 10-49 employees

• 21% of SMEs with 50-249 employees

Permanent non-

borrowers

SMEs using

external finance

PNBs are:

• As likely to be profitable or hold £10k+ of credit balances

• Less likely to plan to grow or to be innovative

A minority of SMEs had applied for new/renewed finance and the proportion has declined over time

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Annual time series: Type 1 applications for new or renewed funds

Q26

Base : All respondents / NEW DEFINITION Q1 2018 Q31/51

50-249 emps 10-49 emps

1-9 emps

0 emps

All SMEs

Using the new questions, 4% of SMEs reported a Type 1 borrowing event, with

relatively little variation by size of SME. 2% made an application as the result of

having a need for funding and a further 2% had another new/renewed

application in the last 12 months

4%

7%

5%

3%

19% 19%

16%

9%

11% 8% 8% 7% 5% 5% 4%

2012 2013 2014 2015 2016 2017 H1 2018

Applications were typically to the main bank and for a loan or overdraft. 85% of applications were successful

9 All Type 1a/b applications - 694

All Type1a/b applications reported in H1 2018

12%

4%

2% 11%

72%

All applications

85% total

Offered but declined

No facility

Offered what wanted and took it

Have facility after issues

Different product from provider

• 67% applied to their main bank

• 17% to another existing provider

• 7% to a new provider

• 4% to an online platform

• 5% elsewhere

• 30% applied for a bank overdraft

• 30% for a bank loan

• 8% for leasing

• 7% for a commercial mortgage

• 6% for a credit card

Demand issues: Very few SMEs had been “Would-be seekers” who had wanted to apply for finance but felt something had stopped them.

10 Pastfin

Base : All respondents

Annual time series: Borrowing profile in 12 months prior to interview

Event in:

Would-be seekers are typically either discouraged from applying, or put off by the process

of borrowing. A quarter of Happy non-seekers are using finance, but haven’t wanted to

apply for any (more) in the last year

Had any event Would be seekers Happy non-seekers

68% 77% 79% 80% 84% 83% 83%

10% 6% 5% 3% 2% 2% 2%

23% 17% 16% 17% 13% 15% 15%

2012 2013 2014 2015 2016 2017 H1 18*

16% 17% 20% 24% 22% 25% 22%

10% 10% 14%

17% 14%

18% 15%

32% 33% 38%

41% 41% 44%

41%

66% 66% 68% 70% 72% 73% 73%

77% 80% 82% 81% 82%

90% 91%

Demand issues: SMEs have other ways of accessing funds – through credit balances, trade credit and injections of personal funds

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Annual time series: £10k or more of credit balances held over time

Q117 Base: All respondents excl DK H1 2018 4743

50-249 emps

10-49 emps

1-9 emps

0 emps

All SMEs

22% of SMEs hold £10k or more of credit balances, 36% receive

trade credit and 28% reported an injection of personal funds

2012 2013 2014 2015 2016 2017 H1 2018

36% of SMEs receive trade credit:

• 31% of 0 employee SMEs

• 48% of 1-9 employees SMEs

• 63% of 10-49 employee SMEs

• 73% of 50-249 employee SMEs

31% of SMEs said that their need for

external finance was reduced by either

trade credit and/or £10k+ of credit

balances (25%- 67% by size of SME)

52% 54% 40% 40% 40% 37% 30% 30%

27% 19%

11% 11% 10% 6%

8% 3%

Plan on what

can afford

Accept slower

growth

Cost of credit

discourage

Future uncertain

so cautious

Never think to

use more

finance

Prepared to

take risks to

succeed

Difficult for us

to get finance

Happy to use

finance to grow

Demand issues: Attitudinally, SMEs are twice as likely to make plans based on what they can afford (79%) as they are to be happy to borrow to help the business grow (33%)

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All attitudes to finance H1 2018 - % agree

Q96 all SMEs

16% of SMEs were happy to use finance to grow but thought it might be difficult for them to

get finance. There was little variation by size, but amongst Would-be seekers, 37% agreed

with both statements

79% 33% 38% 43% 50% 51% 51% 73%

Demand issues: 3 in 10 SMEs (31%) rated one or more of these Top 3 factors as ‘major obstacles’ in H1 2018, up from 22% in 2016

Time series: % Rating each a major obstacle for next 12 months

Political uncertainty Legislation/regulations Economic climate

Q93

Base : All SMEs 13

All three issues were mentioned more individually in H1 2018 than in 2016 with

net mentions of any of the three increasing from 22% to 31%.

13% 13% 12% 11% 10%

15%

18%

34%

27%

17%

13% 12% 14% 15%

10% 10%

14% 16%

2012 2013 2014 2015 2016 2017 H1 2018

14% of SMEs trade internationally. These SMEs are more likely to be innovative and growing, but also have concerns and their appetite for finance has declined

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International SMEs are more ambitious and more likely to be innovative. Since the

referendum, they have become more concerned about the economy and political

uncertainty, and their appetite for finance has declined from 21% in 2016 to 12%

Characteristics of international SMEs H1 2018

Various

Base : All SMEs H1 2018

41% 47%

32%

9% 15% 16%

55% 60%

55%

12% 20% 22%

Have grown Plan to grow Innovation Plan to apply Economic climate Political uncertainty

All SMEs International SMEs

Access to finance has become increasingly a demand rather than a supply issue. There is no

single “silver bullet” to explain it, but credit balances, a self-reliant attitude and low awareness of

some financial products could all be playing a part

SME Finance Monitor - Key findings

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SME performance and sentiment has not changed dramatically overall since 2016, albeit there

are some signs of concern, especially for international SMEs

Finance applications are typically to the main bank and for a “traditional” product . Most resulted

in a facility.

BDRC is certified to ISO 20252 and 27001, the recognised international quality standards for market research and information

security.

• Adherence to the standard is independently audited once per year.

• Where subcontractors are used by BDRC, they are assessed to ensure any outsourced parts of the research are conducted

in adherence to ISO 20252 and 27001.

All work will be carried out in conformity to these standards, the MRS Code of Conduct, and all relevant legal requirements

Quality Standards and Other Details

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