IWOCA are in my news feeds today with their SME survey, which purportedly shows that 66% of SMEs believe that creating policies to make it easier for SMEs to apply for finance should be a priority in the upcoming Budget.
I don't agree.
While the press team at IWOCA will no doubt have the data to back-up their headline, I find it hard to believe it is representative. All of the other indicators, including those summarised in the British Business Bank Small Business Finance Market report, suggest that there is no shortage of access to finance. Credit is widely available and affordable, it is the lack of appetite that is the challenge for lenders to overcome.
The reality is that nearly half of all businesses (47%) have no intention of borrowing at all and another 19% sit firmly on the fence. This means that only 34% of businesses (down from 38% in 2017 and 44% in 2012) are happy borrowers. An astonishing 73% of businesses say they would rather forgo growth than borrow more (up from 70% in 2017).
We see the impact in the net lending figures. £57.7bn of new gross bank lending - still the most common first port of call for those in need of finance - seems like a hefty sum until it balanced against £57.2bn of gross repayments. There was a record low in the number of applications for new overdrafts and loans in H1 2018 according to the BVA BDRC SME Finance monitor.
Instead of pitching improved access to finance as the solution, alternative lenders need to focus on better targeting and education: better targeting to avoid wasting resources on the 50%+ of businesses who will never respond to their solicitations and better education to overcome the biggest barrier to winning businesses from the banks - the existence of a current relationship. The main driving force behind it being easier for business owners to "stick with what they know" is their lack of confidence in being able to assess the advantages and disadvantages of different products and providers. Lenders need to make their advantages explicitly clear.
For those prepared to put in the effort to get it right, the opportunities are there. More than half (52%) of smaller businesses that sought finance in 2019 contacted a finance provider outside of the ‘Big Five’ banks. Several forms of finance have seen strong growth since 2014, with asset finance up 32%, equity finance up 131%, and marketplace business lending up 374%. 52% of small businesses are now aware of peer-to-peer lending (47% in 2017) and 70% of equity crowdfunding (up from 60%).
The tunnel is long, but there is light at the end of it.
All statistics are taken from the British Business Bank Small Business Finance Markets report 2018/19. Read the full report online here .