The SME sector must not become a political football

Friday 30th September 2011

By Angela Knight

Providing financial facilities for the UK’s 4.5 million small and medium sized enterprises (SMEs) is vital to our economy. That is why it is so concerning when we read in the newspapers that banks are not lending. But it is critically important for policy-makers to seek out the facts behind the headlines.

Admittedly, hard evidence from impartial sources has until recently been hard to come by. Much is apocryphal or based on individual case studies. It will always be possible-in good times and bad-to find a business that has had its application for credit turned down. But saying no to a business is not always wrong: not all are viable, and that will always be the case

Good policy-making from the government and banks can only take place if we have a precise picture of the entire SME landscape. We now have this with the publication of the first SME Finance Monitor by BDRC Continental, the UK’s largest independent market research consultancy. It was commissioned by the UK’s largest banks to interview 5,000 businesses from a range of industry sectors and regions in order to give us a precise picture of what SMEs are facing at the moment. The results gave us real insight into what happened in the first quarter of 2011; and from now on the survey will be published every quarter.

So, what did the SME Finance Monitor show?

The first thing was that only half of the businesses surveyed were currently using any credit, with the rest not looking for finance at the moment. Only 15 per cent said they were going to make a new application or were seeking to renew their existing facilities. And of that 15 per cent, most wanted overdrafts rather than loans and a big majority got them.

In all, only 2.2 per cent of all SMEs surveyed did not get their new overdraft or their existing one agreed; and just 1.4 per cent did not get their loan applications or renewals funded.

So the SME Finance Monitor has usefully stripped out the emotion and the estimates, the claims and counterclaims and shows the actual percentage of businesses being refused credit. Importantly, it is also getting to the heart of some of the reasons why businesses get turned down, which in turn means that something can be done.

There clearly remains a credit problem for some; not only the businesses whose applications are turned down for finance but also those who haven’t applied in the first place because they thought they would be turned down, or were discouraged by the bank from applying. As an industry the banks are at the table for making changes so businesses can be more confident that they will get the finance they need-and banks also want to help businesses get their financial applications right.

The SME sector is too important to the UK economy to be used as a political football. All of us need to address the unhelpful and unrealistic view that everyone who wants money should get it. And all of us need to build business confidence – to encourage those in need of finance to work with the banks to secure what they need.

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