Small Business Survey Scotland: 2018

5. Access to external finance 

Banking 

The vast majority of SME employers in Scotland (94 per cent) used a current account in the name of the business as their main bank account and only a very small proportion of SME employers (one per cent) used a personal current account for business purposes^[29]. These proportions were similar to those in the prior year and the UK as a whole.

Bank account switching rates amongst firms surveyed are low. Five per cent of SME employers had switched their main bank account used for business purposes in the previous 12 months, while 95 per cent continued banking with the same bank account^[30]. These proportions were broadly in line with the UK as a whole and those in the prior year.

Figure 14: Main bank or financial institution used for current account 

Base: Cohort C, top-ups with current accounts and panellists that switched, 549 

Don’t know/refused: 10% of SME employers. 

 

Figure 14 shows the main bank or financial institution SME employers in Scotland were using for their current account in 2018. 58 per cent of SME employers in Scotland cited either the Royal Bank of Scotland (32 per cent) or Bank of Scotland (26 per cent) as their main bank. 

Types of external finance currently being used 

70 per cent of SME employers in Scotland were using some form of finance at the time of the 2018 interview (higher than the proportion in the UK as a whole at 63 per cent). The proportion using finance was broadly in line with the figure in the prior year (72 per cent). 28 per cent of SME employers in Scotland were not using any of the types of finance asked about (33 per cent in the UK as a whole)^[31].  

Figure 15 shows the types of finance SME employers in Scotland were using in 2018. The most common forms of external finance used were credit cards (40 per cent of SME employers) and bank overdraft facilities (34 per cent), which was 32 per cent and 29 per cent respectively for SME employers in the UK as a whole. The least common types of finance used by SME employers in Scotland were equity finance, at 3 per cent, and peer-to-peer lending, at 1 per cent (both 2 per cent in the UK as a whole). 

Figure 15: Types of external finance currently used

Base: all SME employers, 836

Don’t know/refused: 2% of SME employers. Multiple answers allowed across this question.

Whether sought external finance in the last 12 months 

17 per cent of SME employers in Scotland had sought external finance in the last 12 months^[32], higher than the proportion in the UK as a whole (12 per cent), but in line with the proportion seeking finance in the prior year (17 per cent). 

Medium-sized businesses (23 per cent) were more likely than average to have sought external finance in the past 12 months.

Reasons for applying for external finance

Of those SME employers that had applied for finance in the last 12 months, 64 per cent had done so for working capital or cash flow purposes whilst 36 per cent had done so for other reasons, a change from 53 per cent and 47 per cent respectively in the prior year. Of those SME employers that had applied for finance for other reasons, the most common reason was for buying/renting, leasing or improving buildings or land (44 per cent). Figure 16 below shows the reasons for seeking external finance for those SME employers that sought finance for reasons other than working capital or cash flow.

Figure 16: Reasons for seeking external finance in the last 12 months other than working capital/cash flow

Base: all that sought external finance in the last 12 months for reasons other than working capital/cash flow, 77

Multiple answers allowed across this question.

The most common reason for seeking external finance for working capital/cash flow was to fund general growth (Figure 17), reported by 45 per cent of those SME employers that applied for this type of external finance, down from 62 per cent in 2017 and lower than the proportion for the UK as a whole (60 per cent). 

Figure 17: Reasons for seeking external finance for working capital/cash flow 

Base: all that sought external finance for cash flow, 92

Multiple answers allowed across this question.

Type of external finance applied for in the last 12 months

Broadly 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 2018 were bank overdraft facilities (38 per cent of SME employers that applied for finance) and loans from banks and other financial institutions (32 per cent) (Figure 18). 

There has been a 12 percentage point rise in the proportion applying for credit cards in Scotland (26 per cent) compared to the prior year (14 per cent), also higher than the UK as a whole in 2018 (15 per cent). 21 per cent of SME employers in Scotland had applied for a government or local authority grant or scheme, higher than the proportion in the UK as a whole (12 per cent). 

Figure 18: Types of finance applied for in the last 12 months 

Base: all that applied for finance in the last 12 months, 150 

Multiple answers allowed across this question.

 

Success in obtaining external finance 

Regarding the final outcome of applications for finance, in 2018, 79 per cent of SME employers that applied for external finance in the previous 12 months were successful in obtaining at least some of the external finance sought, while 12 per cent did not obtain any. For the remaining nine per cent, the outcome of the application was still pending at the time of the interview. The success rate in Scotland was broadly similar with that in the UK as a whole, at 76 per cent. Success rates in Scotland were broadly similar across business size-band.

The success rate in obtaining external finance was broadly in line with 2017 (78 per cent). However, a higher proportion of applications were still pending in 2018 (nine per cent) and therefore it is not possible to make direct comparisons (Figure 19).

Figure 19: Outcome of applications for external finance (%)

Base 2018: all that sought external finance in the last 12 months, 150

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

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’ (25 per cent of SME employers applying for finance) (Table 4).

Table 4: Amount of external finance sought in the last 12 months (%)

Base: all SME employers applying for finance, 150

Less than £10,000	10%
£10,000 to £24,999	25%
£25,000 to £49,999	11%
£50,000 to £99,999	15%
£100,000 to £249,999	15%
£250,000 to £999,999	9%
£1 million or more	6%
Don’t know/Refused to answer	9%

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’ (22 per cent of SME employers who obtained finance) and ‘£100,000 to £249,999’ (17 per cent) (Table 5).

Table 5: Amount of external finance obtained in the last 12 months (%)

Base: all SME employers obtaining finance, 121

Less than £10,000	7%
£10,000 to £24,999	22%
£25,000 to £49,999	14%
£50,000 to £99,999	13%
£100,000 to £249,999	17%
£250,000 to £999,999	8%
£1 million or more	7%
Don’t know/Refused to answer	11%

Discouraged borrowers 

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

12 per cent of SME employers 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 eight per cent)^[33]. This proportion is broadly in line with the figure in 2017 (13 per cent). Micro-sized firms (14 per cent) were more likely than average to have had a need for external finance in the last 12 months that they did not apply for. 

Of those SME employers that had a need for finance but did not apply, 23 per cent reported that the main reason for not applying was because they thought ‘the decision would have taken too long/too much hassle’, higher than the proportion in the UK as a whole (12 per cent) (Figure 20). This was followed by ‘you don’t want to take on additional risk’ (21 per cent) and ‘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 only two per cent, down from 14 per cent in the prior year and lower than the UK as whole (11 per cent).

Figure 20: Main reason for discouragement

Base 2018: Discouraged borrowers, 77 

Future intentions in approaching external finance

SME employers were asked how likely it was that they would approach external finance providers in the next three years. 24 per cent of SME employers said it was likely (10 per cent very likely and 14 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 (20 per cent) and broadly similar to the proportion in the prior year (27 per cent). 

Small (30 per cent) businesses were more likely than average to report that they were likely to approach external finance providers in the next three years. 

72 per cent of SME employers said that it was not likely that they would approach external finance providers in the next three years (28 per cent not very likely and 44 per cent not at all likely). 

Credit granting and late payment 

In 2018, 52 per cent of SME employers in Scotland gave their customers trade credit, broadly similar to the proportion in the prior year (48 per cent) and higher than the proportion in the UK as a whole (45 per cent)^[34]. Medium-sized businesses (81 per cent) were more likely than average to have given their customers trade credit. 

Of those SME employers that granted trade credit to their customers, 59 per cent considered late payment to be a problem (40 per cent reported it was a small problem whilst 19 per cent reported it was a big problem). 41 per cent reported no problems with late payment.

66 per cent of SME employers received trade credit from their suppliers, broadly in line with the proportion in the prior year (64 per cent) and higher than the proportion in the UK as a whole (58 per cent)^[35]. 

Small (75 per cent) and medium-sized businesses (85 per cent) were more likely than average to receive trade credit from their suppliers. Firms in the Manufacturing (89 per cent), Construction (81 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 Administrative Services (54 per cent), Other services (41 per cent), and Information/ Communication (41 per cent) sectors were less likely than average to receive trade credit.