SMEs finding new credit unaffordable

SMEs are finding it increasingly costly to raise new finance. The research, published by the Federation of Small Businesses (FSB), came ahead of the Bank of England’s decision to raise its benchmark interest rate from 0.5 per cent to 0.75 per cent last week, bringing it up to its highest level since March 2009.

Key findings are as follows:

  • 42 per cent of SMEs describe new credit as ‘unaffordable’ in Q3 2018, with just 24 per cent saying the opposite. 
  • 31 per cent are being offered interest rates of under 4 per cent, down considerably from the 39 per cent recorded in Q3 2017.
  • 35 per cent are being offered interest rates of 7 per cent or more on new lines of credit in Q3 2018, up from 24 per cent this time last year.

According to the research just 13 per cent of SMEs made applications for new finance in Q3 2018.

Whilst 38 per cent of these businesses are still applying for bank loans, more and more SMEs are seeking asset-based finance (30 per cent) and approaching crowdfunding (16 per cent) and peer-to-peer (9 per cent) platforms.

Commenting on the findings, FSB National Chairman Mike Cherry, says: “With borrowing costs for small firms already high, it’s critical that any future rate rises are carefully considered and gradual.

“A good proportion of small businesses will welcome the prospect of higher rates taking some heat out of price increases. Consumer inflation has been consistently above 2 per cent for months now with input costs, especially fuel, also on the rise.

“This inflationary pressure has proved a challenge for small firms, not least retailers who are already up against high employment costs and spiralling business rates.

“One big concern is the impact of rising rates on consumer demand. For the first time in 30 years, we have an environment where household outgoings are bigger than household incomes.

“Even a slight increase in consumer credit and mortgage costs is going to have a significant impact on the ability of shoppers, including small business owners, to spend on our struggling high streets.

“We need to see a fundamental shift in the UK’s small business finance culture. Too many firms are reluctant to borrow and realise their full growth potential. Those that do are too reliant on traditional debt products.

“We could learn a thing or two from the US where equity finance is booming. UK firms need to be encouraged to recognise that this kind of investment can bring not only growth finance, but also advice and support from those with real expertise.”

Simon Belton, Director at Beavis Morgan partner business BM Structured Finance, comments: “SME’s should look beyond the banks to raise finance. The key, however, for all businesses seeking funding is in choosing an adviser who understands the finance market.

“It is not a ‘once size fits all process’,” Simon says. “SME’s must choose an adviser who can recommend the right financial products for their specific business needs.

“At BM Structured Finance we specialise in sourcing and restructuring debt finance for SME businesses. We match the most suitable products to each individual circumstance and we work together to ensure compatibility and satisfaction, thereby enhancing the business’ cash flow liquidity and facilitating maximum growth.”

For more information about how BM Structured Finance can help you and your business, contact Simon Belton or your usual Beavis Morgan Partner.