Borrowing is up but a third of businesses have no cover in place

More small businesses are applying and being approved for external finance, a new study claims. According to the SME Finance Monitor, carried out by research consultancy BDRC Continental, 70% of SMEs polled were accessing loans, overdrafts and other types of finance. This is up from 65% at the same time last year.

Many SMEs have struggled to access finance since the financial crash of 2007-2009. Banks had upped their lending to consumers and large companies could access funds through capital markets but lending to smaller businesses has been limited. The Bank of England has suggested poor access to credit was one reason why British productivity was slow to recover following the financial crisis.

Many business owners also remain wary of mainstream banks, some of which withdrew funding abruptly during the crisis. Coupled with the lack of lending, this has seen alternative funding platforms gain in popularity over the past few years.

Bank business lending rates do appear to be rising however as 81% of loan and overdraft applications made over the past 18 months were approved. This is the highest rate since BDRC started the SME Finance Monitor in 2011.

A quarter of businesses polled were planning to apply for finance in the near future, up from around a fifth in 2012.

Separate research from Legal & General suggests however that just under a third (31%) of businesses have no cover for their loans. The number of unsecured credit card borrowing, director loans and overdraft loans worth more than £50,000, have also increased. Credit card debt as a form of business borrowing has soared by 23% since 2011.

All this could leave businesses vulnerable should they be unable to meet repayments or, in some cases, if business owners or other key people die or become critically ill. SMEs with no cover in place could even find themselves facing business insolvency if payments are missed.

By Phil Smith

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