MacRoberts e-update 26/03/10

SCOTTISH GOVERNMENT - SME ACCESS TO FINANCE UPDATE SURVEY

The Scottish Government has now published the results of its November 2009 Access to Finance Survey. The survey updates a review which was conducted in March 2009 to measure access to finance for Scottish SMEs over the preceding three years. The November 2009 survey involved a smaller number of enterprises and looked at a shorter period than the original survey, however it has produced some interesting insights into possible future trends.

Perhaps unsurprisingly, accessing finance remains an issue for SMEs in Scotland. A welcome note is the indication that banks now seem more willing to lend than when the previous survey was conducted. Outright rejection rates have fallen since March 2009 and the indication is that, where applications were rejected, this was because of the poor credit history or lack of suitable security on the part of the prospective borrower rather than a simple reluctance to lend on the part of the banks. Conversely, though, firms have reported that they are now less likely to be able to secure 100% of the funding sought.

The general trends show that demand for finance in the six months surveyed was to refinance existing facilities, rather than to access new funds. This includes a movement away from funding such as credit cards to overdrafts and loans. The overall experience of refinancing has been an increase in costs. More than two thirds of the companies surveyed reported that changes were made to the terms of their facilities when they refinanced, with an even greater percentage of medium sized entities having this exposure. Of the amendments made, the most significant were changes to margins and increased charges, however businesses reported that the length of time taken by lenders to make a decision and increased security requirements were also defining factors.

Whilst many micro firms reported that they had not given any security for their facilities, the majority of small and medium sized businesses had granted some form of security for their funding. For medium sized firms, this tended to be by way of security over the assets of the company itself, whereas smaller firms tended to grant guarantees, often secured by a charge over the guarantor's main residence.

The majority of those who did not seek new funding cited that there was no need to do so, in contrast to the March survey where businesses reported a reluctance to borrow because of a number of factors including the economic climate, cost of credit and concerns about rejection.

Most of the companies surveyed cited working capital and cash flow requirements as their main reasons for looking to access finance. Such issues had more of an impact on smaller companies though, with around 17% stating that they got into 'serious financial difficulties'. The main change identified by the November survey in this regard was that access to finance was increasingly perceived to be a greater constraint to business activity than other factors.

On the subject of growth, the November survey showed a small shift away from 'staying the same' to 'growing moderately'. 'Where businesses do aspire to grow over the next three years, the vast majority stated that they would do so using funds generated by the business. Where external financing was to be sought, the findings of the survey were that this would most likely take the form of overdrafts, secured and unsecured loans and investors/equity.

To read the full text of the Access to Finance Survey, please click here.

For further information, please contact Frances Sim on 0131 229 5046 or Fiona Masterton on 0141 303 1100.

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