Small Business Survey Scotland: 2017

5. Access to external finance

Banking

The vast majority of SMEs in Scotland (95 per cent) used a current account in the name of the business as their main bank account and only a very small proportion of SMEs (two per cent) used a personal current account for business purposes. These proportions were in line with those in the UK as a whole and those in the prior year.

Bank account switching rates amongst firms surveyed are low. Six per cent of SMEs had switched their main bank account used for business purposes in the previous 12 months, while 94 per cent continued banking with the same bank account. These proportions were broadly in line with those in the prior year.

Figure 13 shows the main bank or financial institution SMEs in Scotland were using for their current account in 2017. 60 per cent of SMEs in Scotland cited either the Royal Bank of Scotland (38 per cent) or Bank of Scotland ( HBOS) (22 per cent) as their main bank.

Figure 13: Main bank or financial institution used for current account

Base: all SME employers, 779

Don’t know/refused: 6% of SMEs.

Types of external finance currently being used

Figure 14 below shows the types of finance SMEs in Scotland were using in 2017. The most common forms of external finance used were credit cards (33 per cent) and bank overdraft facilities (31 per cent), in line with findings for SMEs in the UK as a whole. 27 per cent of SMEs used none of these types of finance.

Figure 14: Types of external finance currently used

Base: all SME employers, 779

Don’t know/refused: 1% of SMEs. Multiple answers allowed across this question.

Whether sought external finance in the last 12 months

17 per cent of SMEs in Scotland had sought external finance in the last 12 months, higher than the proportion in the UK as a whole (13 per cent) but broadly in line with the proportion seeking finance in 2016 (16 per cent).

10 per cent of SMEs sought external finance just once, while six per cent sought it more than once ^[20] .

The proportion of SMEs that sought finance was broadly consistent across business size band. SMEs in the Primary sector were more likely to have sought external finance in the past 12 months (31 per cent), while SMEs in the Business Services sector were less likely than average to seek external finance (nine per cent).

Reasons for applying for external finance ^[21]

Of those SMEs that had applied for finance in the last 12 months, 53 per cent had done so for working capital or cashflow purposes whilst 48 per cent had done so for other reasons. Of those SMEs that had applied for finance for other reasons, the most common reason was to acquire capital equipment or vehicles (55 per cent). Figure 15 below shows the reasons for seeking external finance for those SMEs that sought finance for reasons other than working capital or cashflow.

Figure 15: Reasons for seeking external finance in the last 12 months other than working capital/cashflow

Base: all that sought external finance in the last 12 months for reasons other than working capital/cashflow, 69

Multiple answers allowed across this question.

The most common reason for seeking external finance for working capital/cashflow was to fund general growth, reported by 62 per cent of those SMEs that applied for this type of external finance (Figure 16).

Figure 16: Reasons for seeking external finance for working capital/cash flow

Base: all that sought external finance for cash flow, 75

Multiple answers allowed across this question.

Type of external finance applied for in the last 12 months

In line with the prior year and with findings for the UK as a whole, the most common forms of external finance applied for in 2017 were bank overdraft facilities (35 per cent of SMEs that applied for finance) and loans from banks and other financial institutions (34 per cent) (Figure 17).

Figure 17: Types of finance applied for in the last 12 months

Base: all that applied for finance in the last 12 months, 133

Multiple answers allowed across this question.

Success in obtaining external finance

Regarding the final outcome of applications for finance, in 2017, 78 per cent of SMEs that applied for external finance in the previous 12 months were successful in obtaining at least some of the external finance sought, while 15 per cent did not obtain any. For the remaining seven per cent, the outcome of the application was still pending at the time of the interview. The success rate in Scotland was broadly in line with that in the UK as a whole, at 77 per cent. Success rates in Scotland were broadly similar across business sizeband.

It appears that the success rate in obtaining external finance was higher than in 2016. However, a higher proportion of applications were still pending in 2016 (21 per cent) and therefore it is not possible to make a direct comparison (Figure 18).

Figure 18: Outcome of applications for external finance (%)

Base 2017: all that sought external finance in the last 12 months, 133

Base 2016: all that sought external finance in the last 12 months, 134

Amount of external finance sought

The most common amount of finance sought in the last 12 months was in the range ‘£10,000 to £24,999’ (26 per cent) (Table 4).

Table 4: Amount of external finance sought in the last 12 months (%) Base: all SMEs applying for finance, 133
Less than £10,000	10%
£10,000 to £24,999	26%
£25,000 to £49,999	15%
£50,000 to £99,999	14%
£100,000 to £249,999	12%
£250,000 to £999,999	7%
£1 million or more	6%
Don’t know/Refused to answer	10%

Amount of external finance obtained

The most common amounts of finance obtained in the last 12 months were in the ranges ‘£10,000 to £24,999’ (24 per cent) and ‘£25,000 to £49,999’ (20 per cent) (Table 5).

Table 5: Amount of external finance obtained in the last 12 months (%) Base: all SMEs obtaining finance, 109
Less than £10,000	15%
£10,000 to £24,999	24%
£25,000 to £49,999	20%
£50,000 to £99,999	12%
£100,000 to £249,999	8%
£250,000 to £999,999	6%
£1 million or more	6%
Don’t know/Refused to answer	9%

Discouraged borrowers

Discouraged borrowers are businesses that would like to borrow but do not apply.

13 per cent of SMEs in Scotland had a need for external finance in the last 12 months that they did not apply for (higher than the proportion in the UK as a whole, at nine per cent) ^[22] . This proportion is broadly consistent amongst SMEs of all sizes and is broadly in line with the figure in 2016 (11 per cent).

Of those SMEs that had a need for finance but did not apply, 21 per cent reported that the main reason for not applying was because they thought ‘ the decision would have taken too long/too much hassle’. This was followed by ‘ you thought you would be rejected (19 per cent). The proportion that reported they ‘thought it would be too expensive’ as their main reason for discouragement stood at 14 per cent (Figure 19).

Figure 19: Main reason for discouragement

Base 2017: Discouraged borrowers, 80

Credit granting and late payment

In 2017, 48 per cent of SMEs in Scotland gave their customers trade credit, broadly in line with the proportion in the prior year (46 per cent) and the proportion in the UK as a whole (50 per cent). Small (60 per cent) and medium-sized businesses (68 per cent) were more likely than average to have given their customers trade credit. By sector, businesses in the Manufacturing (86 per cent) and Construction sectors (68 per cent) were more likely than average to give their customers trade credit. SMEs in Administrative Services (29 per cent) and Other Services sectors (24 per cent) were less likely to give credit.

Of those SMEs that granted trade credit to their customers, 54 per cent considered late payment to be a problem (40 per cent reported it was a small problem whilst 14 per cent reported it was a big problem). 45 per cent reported no problems with late payment.

64 per cent of SMEs received trade credit from their suppliers, broadly in line with the proportion in the prior year (65 per cent) and the proportion in the UK as a whole (66 per cent). Small (74 per cent) and medium-sized businesses (82 per cent) were more likely than average to receive trade credit from their suppliers. Firms in the Manufacturing (85 per cent), Construction (83 per cent) and Transport/ Retail/ Distribution sectors (74 per cent) were more likely than average to receive trade credit from their suppliers. Businesses in the Business Services (48 per cent), Administrative Services (46 per cent), Other Services (44 per cent) and Information/Communication (33 per cent) sectors were less likely than average to receive trade credit.

Future intentions in approaching external finance

SMEs were asked how likely it was that they would approach external finance providers in the next three years. 27 per cent of SMEs said it was likely (12 per cent very likely and 15 per cent fairly likely) that they would approach external finance providers in the next three years, higher than the proportion in the UK as a whole (22 per cent) and marginally higher than the proportion in the prior year (24 per cent). Medium-sized businesses were more likely than average to report that they were likely to approach external finance providers in the next three years (38 per cent). 71 per cent of SMEs said that it was not likely that they would approach external finance providers in the next three years (25 per cent not very likely and 46 per cent not at all likely).