A new study into the availability of finance for the UK’s small and medium-sized commercial property businesses, reports that a fifth of commercial property SMEs plan to apply for funding in the first quarter of 2012.
The study, from BDRC Continental, was commissioned by the Business Finance Taskforce and is produced independently under the control of an external Chairman and a Steering Group. The results are based on over 15,000 telephone interviews with UK commercial property businesses with up to £25m turnover.
The study found that fewer SMEs in the fourth quarter of 2011 had applied for a loan/overdraft service in a 12 month period, than in the first to second quarter. Seven per cent of all commercial property SMEs interviewed in Q4 had applied for new or renewed overdraft services in the previous 12 months, down from 13 per cent in Q1-2 (also in the previous 12 months).
For loans, 3 per cent had applied for new or renewed loan services, down from 5 per cent earlier in the year. The total figure for applications for new/renewed services is nine per cent for the fourth quarter of 2011, compared to 15 per cent in Q1-Q2. The decline is mainly predominant in smaller commercial property businesses with less than 10 workers and a worse than average credit rating. Demand amongst larger commercial property businesses with 50-250 staff was unaffected.
Most SMEs that applied for finance were successful. Overdraft rates remain higher than for loans. Seventy-nine per cent (more than three quarters) of applications for new/renewed overdraft services were successful; 17 per cent were unsuccessful, this represents one per cent of all commercial property SMEs. Sixty-three per cent of loan applicants succeeded and 33 per cent ended up without a loan facility, this too equates to one per cent of all commercial property SMEs. Size of business and external risk rating remain significant influential facts for success when applying for finance.
Automatic renewal of overdrafts improved the overdraft success rates to 93 per cent in the fourth quarter of 2011. In fact half of all commercial property SMEs with an overdraft had their funding renewed in this way; this equates to 12 per cent of all commercial property SMEs.
Over the past 12 months a growing amount of commercial property SMEs are described as ‘happy nonseekers’-who had neither applied for finance nor needed or wanted to. Seventy-eight per cent (over three quarters) of commercial property SMEs fell into this classification in the last wave of research, up from 68 per cent in quarter one and quarter two in 2011 when the research started.
The amount of those who needed finance, yet felt unable to apply had remained steady at 12 per cent. These “would be seekers” now cite deterrent as less of a reason for not pursuing an overdraft (at 24 per cent in quarter four compared to 34 per cent in quarter three) but discouragement remains a vital reason for not having pursued a loan. This discouragement can either be direct, for instance; asking the bank informally and being put off from applying) or, more commonly, indirect (assuming they would be rejected so not asking).
The present economic climate is still the key reason for not applying for future finance. Fourteen per cent of all commercial property SMEs plan to apply for finance in the next one month, with one in five of all commercial property SMEs with workers saying they are likely to pursue funding. Twenty per cent of commercial property SMEs are “future would-be seekers”-who would like to apply to finance however are deterred-very few of these have an immediate need for finance (equates to three per cent of all commercial property SMEs).
Comparing the last quarter of 2011 with the third quarter, 52 per cent (more than half) of those commercial property SMEs that would like to apply for an overdraft or loan in the future refer to the economy as the reason they are unlikely to do so, a growth of nine percentage points over three months.
Director at BDRC Continental, Shiona Davies, said: “Demand for finance remained muted in 2011. Most applicants were successful, but smaller SMEs in particular were less likely to get approval for new funding. Looking forward, there are some signs of optimism – larger SMEs are more likely to be considering applying for, or renewing, external finance in the next three months, and almost half of all SMEs (44 per cent) plan to grow in the next year. As we follow SMEs through 2012 we will see whether that optimism is maintained, and the extent to which the economic climate continues to influence their borrowing decisions.”
