Four out of five SME loan applications were approved in 2014, compared with 71% in 2013, according to research by venture capital firm Albion Ventures.
Despite these improvements, just 1 in 10 SMEs applied for finance during the past 12 months, down from 17% in the year before.
The survey of 450 firms revealed a number of changes in the ways SMEs use debt finance over the last year:
- the proportion of SMEs seeking credit or investment to fund working capital fell from 32% to 24%
- 27% of firms raised finance to develop their business over the last year and 23% took out loans to expand their premises
- the percentage of SME borrowing done through bank loans and overdrafts fell from 76% to 62%
- alternative finance sources such as equity investments from venture capitalist and angel investors (6%) are still far less popular than traditional bank loans.
In terms of motivations and expectations, the study also found:
- 1 in 3 surveyed SMEs plans to raise finance in the next 12 months
- 85% of the SMEs that did not apply for finance said they didn’t need it, while 7% didn’t want to take on more debt
- 62% expect growth in the next 2 years while just 3% expect their business to shrink.
A separate study conducted by YouGov on behalf of Simply Business found that 52% of small firms have £10,000 or less in cash reserves.
The survey of more than 1,000 small business owners found:
- 3 in 10 SMEs have £500 or less
- 20% have no reserves at all
- 16% of businesses do not know how much cash they have in reserve
- 17% don’t know how much their fixed monthly costs are.
Jason Stockwood, chief executive of Simply Business, said small businesses were “… woefully underprepared for unforeseen circumstances which will prevent trading. Small business owners play a crucial role in the economic recovery, but we must ensure they are not existing so close to the brink.”