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Small firms shy away from traditional funding

by Susie Hughes at 10:40 28/08/14 (News on Business)

Small firms are shying away from the traditional route of the banks to fund their growing businesses and their future plans.

The economic recovery may be continuing to gather momentum, however the latest information from the BDRC Continental SME Finance Monitor, highlights ongoing concern that distrust of the banking sector is continuing to affect the growth plans of some small businesses and the pace of the recovery. Figures for the second quarter of 2014 show that economic conditions continue to be seen as less of a barrier to growth, with only 15 per cent of the small business owners looking to grow this year, seeing them as a significant barrier. The report also highlights growing profits and credit balances as well as fewer SMEs feeling they have to resort to dipping into ‘personal funds’ to finance their ventures. Reluctance Despite the improving small business optimism, the report also highlights the banks reluctance to lend to growing companies. One in nine of the companies surveyed, with growth intentions for the next 12 months, see accessing finance as a ‘major obstacle’ to their aspirations and equal to cash flow difficulties. Advertisement In addition, a third of small businesses seeking business loans were turned down by the banks and were unable to raise the money needed from other sources. This figure would have been even worse but for the fact that around one in ten businesses were able to access finance from alternative funders. Phil Orford, 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 running their business, but an ongoing decline in small firms looking to outside sources for future funding. “In the same quarter of 2011, 51 per cent of small businesses used external finance and 30 per cent were seen as ‘permanent non-borrowers’. These figures show almost two thirds of SMEs do not use external finance, and the number of ‘permanent non-borrowers’ has risen to 40 per cent. This highlights a continuing reversal in the number of businesses looking to the banks. “Many small firms continue to feel they will be unsuccessful in securing external funding and that this could impact on their credit rating. This report indicates that there is an element of truth to this fear. A significant number of small firms are choosing to avoid seeking external finance altogether and are looking to use their profits to fund their growth aspirations, which – whilst a sustainable option – may impact on the pace of recovery.” hashtags="SMEs">Tweet -- If you wish to comment on this article, please log in and use the Reply button below. Registering is free and easy - see 'Join Shout99'. - Susie Hughes © Shout99 2014

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