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How long can small firms fund their own future?

New data published this week around bank lending has shown what many have long suspected, but have hitherto been unable to prove this year. And that is that bank lending is still in decline – or that was certainly the case up until the end of March.
The research, carried out as part of the bank funded BDRC Finance Monitor, showed the number of firms using external finance dipped to a new low in the first three months of Q1 with just 39% of SMEs actively seeking credit. When the first Monitor was undertaken in 2011 the figure stood at 51%, and between the two there have been successive quarterly studies showing steady decline.
 
So it’ll be all eyes on Q2 and Q3 lending figures soon enough, and if we get to Q3 and there’s hasn’t been a change, it’s likely there’ll be eyebrows raised.
 
Also in the BDRC research is evidence that many firms are happy non-seekers of finance. This effectively means firms don’t want cash, or are already covered.  What does this mean though?
 
What it means is that any recovery people are expecting this summer is likely to come from firms spending their own stockpiled cash reserves. We know this isn’t sustainable in the long term. While three quarters are happy non-seekers of finance, there will come a point when they do need the help of lenders to grow. That could be the crunch point and be a problem in the making for years to come.
 
The BDRC data also reveals businesses are continuing to use alternate forms of lending to access cash as opposed to more traditional methods. Bank overdraft usage has dropped more than a third since 2011, and even the use of credit cards has dropped, down from 20% in 2011 to 17% in 2013 Q1.
 
And it remains the case that younger firms, seen as the more risky, were still less likely to get a yes from their bank manager. Of first time applicants 62% were refused overdraft facilities, and 59% loan applications. Those aren’t good odds.
We speak to our members all the time and this is something we hear a lot on: established firms quite often appear to see no issues accessing bank credit, it’s the start-ups and the fledgling firms the ones with issue here. This BDRC data confirms what we’ve been saying for months.

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