SME Finance

Monitor

Highlights from Q2 2016

An independent report by

BDRC Continental

Published September 2016

2

Today’s presentation is taken from the SME Finance Monitor

3

Key findings for the Q2 report

The current picture for SMEs is largely one of steadiness, in terms

of growth, profitability, credit balances, barriers to running the

business etc

Demand for new /renewed finance continues to decline and the

new attitudinal questions show many SMEs relying on self funding

and slower growth rather than looking to external finance for help.

Success rates for those that do apply remain high and

improvements have been seen for those who were previously less

likely to be successful such as first time applicants

Steady

performance

Low levels of

demand

Success rates

high

4

Most SMEs are profitable. Larger SMEs are more likely to be trading internationally

Profit

(excl DK)

Minimal/low

external risk

rating

Trades

internationally

YE Q2 16

81%

23%

17% 15%

15%

80%

21%

39%

82%

29%

69%

87%

35%

78%

91%

50-249 emps 10-49 emps 1-9 emps 0 emps All SMEs

74% of SMEs have no employees

Larger SMEs are somewhat more likely to have made a profit, have a better

external risk profile, and are more likely to be international

£

!

5

44% 41% 33%

39% 40% 36% 36% 36% 36%

40% 33% 36%

2012 2013 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16

Use of any external finance has fallen from 44% in 2012 to 36% in Q2 2016

Time series: Use of external finance per quarter

Q15

Base : All respondents

5055/5010/5023/5000/5032/5000/5000/5000/5008/5026/5000/5023/5038/5001/5004/5003/4500/4500

50-249 emps 10-49 emps

1-9 emps

0 emps

All SMEs

2014: 37%

Overall use of external finance is driven by the behaviour of 0 employee SMEs. Their use

of external finance fell from 38% in 2012 to 32% in both 2014 and 2015 and then 29% for the

first half of 2016.

64%

61%

50%

31%

2015: 37%

6

44% 41%

33%

39% 40% 36% 36% 36% 36%

40%

33% 36%

36% 32%

27% 30% 31%

28% 29% 28% 29% 32%

25%

30%

18% 18%

13%

18% 20%

16% 16% 17% 16% 19%

15% 15%

2012 2013 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16

The drop in use of external finance is driven by the lower levels of usage of core finance (loans, overdrafts and/or credit cards)

Time series: Core and other financial products

Q15/14 and others

Base : All respondents

5000/5032/5000/5000/5000/5008/5028/5000/5008/5023/5024/5038/5001/5004/5003/4500/4500

The proportion of SMEs that only use core products (loans, overdrafts and/or credit cards) was

26% in 2012. It was 20% in both 2014 and 2015 and is currently 19% for 2016.

7% of SMEs only used one of the other forms of finance recorded (8% for 2012 as a whole),

while 8% used both (10% for 2012 as a whole)

Use any external finance now Other Core products

7

6% 8% 7% 7% 8%

2012 2013 2014 2015 H1 2016

Larger SMEs have become somewhat less likely to use leasing or invoice finance

Time series: Use of finance

Q15

Base : All respondents

50-249 emps

10-49 emps

1-9 emps

0 emps

All SMEs

22%

22%

12%

6%

33%

24%

11%

4% 3% 2% 3% 2% 2%

2012 2013 2014 2015 H1 2016

15%

11%

4%

2%

11%

8%

3%

1%

Leasing / HP Invoice Finance

Larger SMEs remain more likely to be using either leasing or Invoice finance

than their smaller peers. Overall usage is stable over time, but larger SMEs

have become somewhat less likely to be using leasing in particular.

8

24% 22%

32% 37%

41% 42%

7% 10% 11% 12% 12%

H2 13 H1 14 H2 14 H1 15 H2 15 H1 16

Aware (all) Would consider (all)

An increasing proportion of SMEs are aware of crowd funding, while the proportion of those aware who would consider using it is stable

Time series: Awareness and consideration of crowd funding – excluding PNBs.

Q238a2

Base : All respondents excluding PNBs H1 2016 5862

All SMEs

Excl PNBs

Awareness of crowd funding amongst SMEs (excluding PNBs) is increasing over time, to

42% for H1 2016. The proportion of SMEs that would consider using this form of finance

has also increased (to 12%) but not at the same pace as overall awareness.

1% of SMEs (excluding PNBs) are using this form of finance – most of them are also

using other forms of finance

32% 31% 30% 29% % aware who would

consider: 29%

9

34%

40%

48%

39% 40%

47% 48% 49% 46%

43%

49% 47%

44%

41%

33%

39% 40% 36% 36% 36% 36%

40%

33% 36%

2012 2013 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16

A gap is re-emerging between the proportion of SMEs using external finance and those meeting the definition of a Permanent non-borrower

Time series: Permanent non-borrowers and users of external finance

Q15/14 and others

Base : All respondents

5010/5023/5000/5032/5000/5000/5000/5008/5026/5000/5008/5023/5024/5001/5004/4500/4500

Use any

external

finance now

The „Permanent non-borrowers’ are not using external finance and show no inclination to do so.

In 2012, 34% of SMEs were PNBs, increasing steadily to 47% for 2015 as a whole. In 2016 to date,

48% have met the PNB definition and there is currently an 11% point gap between PNBs and users of

external finance.

Permanent

non-

borrowers

2014: 37% 2015: 37%

2014: 43% 2015: 47%

10

11% 8% 8% 7% 6%

2012 2013 2014 2015 H1 2016

Demand for new and renewed loan and overdraft facilities has declined steadily since 2012

Time series: Type 1 applications for new or renewed funds

Q26

Base : All respondents

50-249 emps

10-49 emps

1-9 emps

0 emps

All SMEs

The proportion of the largest SMEs applying for new/renewed finance has halved since

2012 and there has been a decline across all size bands and once the PNBs are

excluded (16% in 2012 to 11% in H1 2016).

9%

11%

8%

4%

19% 19%

16%

9%

11

68% 77%

82% 78% 77% 82% 79% 82% 80% 78%

83% 83%

10%

6% 4%

5% 5% 3%

3% 2% 3% 5%

3% 2% 23% 17% 14% 17% 18% 15% 18% 16% 16% 17% 13% 15%

2012 2013 Yr to Q114

Yr to Q214

Yr to Q314

Yr to Q414

Yr to Q115

Yr to Q215

Yr to Q315

Yr to Q415

Yr to Q116

Yr to Q216

Most SMEs are ‘Happy non-seekers’ of finance. A declining minority wanted to apply but felt something stopped them

Q115/209

Base : All respondents 20,055/20,036/5008/5026/5000/5023/5024/5038/5001/5004/4500/4500

Time series: Borrowing profile in 12 months prior to interview

Had any event Would be seekers Happy non-seekers

Event in:

The proportion of Happy non-seekers has increased over time, from 68% for 2012

to 80% for 2015 and then 83% in the first half of 2016. Over the same time period, the

proportion reporting a borrowing event has declined from 1 in 4 to 1 in 6 SMEs and the

proportion of ‘Would be seekers’ has remained limited.

12

Most SMEs are ‘Future happy non-seekers’ with fewer would be seekers and a fairly stable proportion planning to apply

Time series: Anticipated borrowing profile for next 3 months after …

Have plans to apply/renew Would be seekers - with need Would be seekers – no need Happy non-seekers

63% 68% 72% 68% 69%

75% 75% 79% 76% 73% 74% 76%

20% 16%

15% 17% 14%

11% 10% 10%

11% 11% 11%

12% 3% 2%

1% 1% 2% 1% 1% 1%

1% 1% 1%

14% 14% 12% 14% 15% 13% 14% 11% 12% 16% 14% 11%

2012 2013 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16

Each quarter, the majority of SMEs have expected to be “Happy non-seekers”. Over

time this proportion has increased (from 63% in 2012 to 76% in 2015 and Q2 2016) as the

proportion of ‘Future would-be seekers” has declined (23% to 11% and 13% in Q2 2016) Q229

Base : All respondents 20,055/20,036/5028/5000/5023/5024/5038/5001/5004/5003/4500/4500

13

Levels of agreement with self funding and self-reliance are typically higher amongst smaller SMEs

Attitudes to finance– H1 16 only

Q238a5

Base : All SMEs H1 2016 9000 1800/2900/2900/1400

Our current plans for the business are based entirely

on what we can afford to fund ourselves

Aim to pay down debt and remain debt free

Happy to use external finance to help business grow

NEW: We will accept a slower rate of growth rather

than borrowing to grow faster

NEW: We never think about whether we could/should

use more external finance

All 0

emps

1-9

emps

10-49

emps

50-249

emps

47% 48% 44% 36% 29%

71% 72% 69% 63% 52%

81% 82% 79% 69% 62%

43% 41% 50% 53% 52%

68% 66% 71% 69% 62%

14

85%

92% 95% 97% 94% 96% 98% 98% 98%

90% 100% 98% 100% 100% 100% 100%

54%

47% 52%

57%

36% 41%

56% 59%

66% 65%

81%

71%

65%

58%

73% 69%

Q1 12 Q2 12 Q3 12 Q412 Q113 Q213 Q313 Q413 Q114 Q214 Q314 Q414 Q115 Q215 Q315* Q415*

Almost all renewals are successful. Applications for new money have been more variable over time

Time series: Outcome by application date – ALL renewed v new money (loans and overdrafts)

Base : All applicants

Renewals: 244/255/200/237/246/193/157/129 New money: 262/305/219/264/233/205/169/171 INTERIM DATA

Applied in:

% have new loan/overdraft facility % have renewed loan/overdraft facility

Almost all renewals have been successful. Those applying for a new loan or

overdraft facility have seen more variability in success rates over time with a

generally improving picture

15

7% 8% 8% 5% 7%

38% 43% 26% 25% 28%

14% 15% 15% 14% 13%

40% 34% 50% 56% 53%

Success rates for new loan or overdraft applications have increased over time

Time series: Outcome over time – all new money applications made in each 18 month period (loan or overdraft)

All respondents who have had response from bank in each 18 month period

Offered what wanted and took it Have facility after issues Took other funding instead No facility

Q412 Q413 Q414 Q415

In 18

mths

to:

Q216

54% 49% 65% 70% 66%

16

7% 8% 8% 5% 7%

38% 43% 26% 25% 28%

14% 15% 15% 14% 13%

40% 34% 50% 56% 53%

41% 39%

55% 61% 61%

70% 69% 74% 75%

69%

Increasing success rates for first time applicants (FTAs) has driven the increase in success rates for new money

Time series: Outcome over time – all new money applications made in each 18 month period (loan or overdraft)

All respondents who have had response from bank in each 18 month period

Offered what wanted and took it Have facility after issues Took other funding instead No facility

Q412 Q413 Q414 Q415

In 18

mths

to:

Q216

First time applicants Other new money

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In conclusion…

Steady

performance

Low levels of

demand

Success rates

high

The next full report will be published in February 2017. Headline

findings on what has happened since the end of Q2 2016 have been

commissioned by BEIS and publication is planned by the end of the year