Small Business Survey Scotland: 2021

Access to external finance

Banking

The vast majority of SME employers in Scotland (96 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 (2 per cent) used a personal current account for business purposes. These proportions were similar to those in 2020 (94 per cent used a current account).

Types of external finance currently being used

78 per cent of SME employers in Scotland were using some form of finance at the time of the 2021 interview (higher than the proportion in the UK as a whole at 74 per cent). 21 per cent of SME employers in Scotland were not using any of the types of finance asked about (25 per cent in the UK as a whole). 1 per cent of SME employers in Scotland did not know if or which types of finance they currently used and a further 1 per cent refused to answer the question.

Figure 13 shows the types of finance SME employers in Scotland were using in 2021. The most common forms of external finance used were credit cards (31 per cent of SME employers) and bank overdraft facilities (28 per cent), which compares to 32 per cent and 24 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 1 per cent, and peer-to-peer lending, at 1 per cent (both 1 per cent in the UK as a whole). Factoring/invoice discounting was also at 1 per cent of respondents in Scotland, significantly lower than the UK figure of 3 per cent.

Figure 13: Types of external finance currently used

Base: all SME employers, 677

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

Type of External Finance Sought   

Eleven per cent of SME employers in 2021 had tried to obtain external finance in the previous 12 months before the survey. Included within this group were three per cent who had sought external finance more than once. This is not significantly different from 2020 (13%). Of SME employers in Scotland who tried to obtain external finance in the 12 months before the survey, 20 per cent stated that this was their first time attempting to secure external finance. Medium sized businesses were the most likely to seek external finance in 2021, at 18 per cent. SMEs in the administrative services sector were more likely to seek external finance than other sectors, at 28 per cent.

Shown below in Figure 14 is a summary of the types of external finance sought by Scottish SMEs. Bank overdrafts are the most popular option by a wide margin, at 43 per cent.

Figure 14: Type of external finance sought

Base: All SMEs that sought external finance in the last 12 months; 73

Don’t know/refused: 2% of SME employers.

Reasons for applying for external finance

Of those SME employers that had applied for finance in the last 12 months, 70 per cent had done so for working capital or cash flow purposes whilst 30 per cent had done so for other reasons. Of those SME employers that had applied for finance for other reasons, the most common reason was for acquiring capital equipment or vehicles (59 per cent). Figure 15 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 15: 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, 32

Multiple answers allowed across this question.

The most common reason for seeking external finance was to cover a short term gap until funds were received from customers (Figure 16), reported by 56 per cent of those SME employers that applied for this type of external finance, higher than the proportion for the UK as a whole (50 per cent).

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

Base: all that sought external finance for cash flow, 47

Don’t Know/Refused: 0%

Multiple answers allowed across this question.

Amount of external finance sought

The most common amount of finance sought in the last 12 months was in the range ‘£25,000 to £99,999’ (48 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, 73

Amount of external finance obtained

The most common amounts of finance obtained in the last 12 months were in the ranges ‘£25,000 to £99,999’ (37 per cent of SME employers who obtained finance) and ‘£5,000 to £24,999’ (16 per cent) (Table 5).

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

Base: all SME employers obtaining finance, 121

Discouraged borrowers

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

9 per cent of SME employers in Scotland had a need for external finance in the last 12 months that they did not apply for (identical to the proportion in the UK as a whole, at nine per cent).

Please note that this proportion includes those who had already applied for external finance in the last 12 months but who wanted more external finance that they did not apply for, as well as those that had a need for finance but did not apply at all.

This proportion is slightly lower than the figure in 2020 (12 per cent) though this change was not found to be statistically significant. Small-sized firms (11 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, 61 per cent reported that the main reason for not applying was because they thought they ‘did not want to take on additional risk’, lower than the proportion in the UK as a whole (67 per cent) though this difference was not found to be statistically significant. This was followed by it not being ‘the right time because of economic conditions’ (46 per cent) and because they ‘thought [they] would be rejected’ (28 per cent).

Figure 17: Main reason for discouragement

Base 2021: Discouraged borrowers, 67

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 (12 per cent very likely and 12 per cent fairly likely) that they would do so, higher than the proportion in the UK as a whole (18 per cent) and broadly similar to the proportion in the prior year (23 per cent).

Medium-sized (40 per cent) businesses were more likely than average to report that they were likely to approach external finance providers in the next three years.

74 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 46 per cent not at all likely).

Credit granting and late payment

In 2021, 54 per cent of SME employers in Scotland gave their customers trade credit, which was not significantly different from the proportion in the prior year (47 per cent). Medium-sized businesses (80 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, 50 per cent considered late payment to be a problem (38 per cent reported it was a small problem whilst 12 per cent reported it was a big problem). 50 per cent reported no problems with late payment.

69 per cent of SME employers received trade credit from their suppliers, higher than the previous year (60 per cent) however this difference was not found to be statistically significant.