One in four SMEs says credit is "unaffordable"

6 August 2018


One in four SMEs says credit is "unaffordable"Small firms are finding it increasingly costly to raise new finance, according to the latest research from the Federation of Small Businesses.

The FSB survey of 984 small businesses took place in July 2018, before the recent UK interest rate rise by the Bank of England. It reveals that 42% of small firms say new credit is "unaffordable" in Q3 2018, with less than a quarter (24%) saying the opposite.

The report's key findings are:

  • Only 13% of small firms are making applications for new finance in Q3 2018;
  • 31% of SMEs are being offered interest rates of under 4%, down from 39% recorded in Q3 2017;
  • 35% are being offered interest rates of 7% or more on new lines of credit in Q3 2018, up from 24% at this time last year.

Though a significant number (38%) of businesses looking for credit are still applying for bank loans, increasing numbers are also seeking asset-based finance (30%) and approaching crowdfunding (16%) and peer-to-peer (9%) platforms.

FSB analysis shows that many small firms are "permanent non-borrowers", with almost three-quarters saying they would rather grow their business more slowly than borrow to enable faster growth.

Mike Cherry, FSB national chairman, said: "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," he added. "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."