SME Access To Finance Survey: 2019

9. Obstacles facing SMEs

Summary

• When considered alongside other factors affecting business, access to finance does not appear to present a pressing problem to SMEs as a whole. However, when considering finance in isolation, a quarter of SMEs considered it to be a problem rated 5 or more on a 1-10 scale, where a higher score indicates increasing severity.
• Looking more granularly, more than one in ten medium-sized and manufacturing businesses rated finance as a critical problem, reflecting their higher rejection rates and indicating there were still groups of firms that faced issues in accessing the finance they needed.
• Local bank branches were considered more important by rural and agriculture SMEs and a higher proportion of rural SMEs felt bank branch closures were affecting their ability to access finance. This reflects the high value rural SMEs place on face to face transactions and the challenges some rural SMEs face in engaging with online banking.
• The ways in which SMEs felt bank branch closures affected their business differed to some extent for urban and rural firms however difficulties in depositing cash and obtaining tailored financial advice were common to both.

This section considers the extent to which SMEs consider access to finance and other issues, including bank branch closures, to present a problem for their business. The results are presented for SMEs as a whole and, where possible, for key sub-groups of interest including size band, sector, business type (high growth/exporter/new start) and location (urban/rural).

9.1 Access to finance

When considered alongside other factors affecting business, access to finance does not appear to present a pressing problem to SMEs as a whole. However, when considering finance in isolation, a quarter of SMEs considered it to be a problem rated 5 or more on a 1-10 scale, where a higher score indicates increasing severity. Looking more granularly, more than one in ten medium-sized and manufacturing businesses rated finance as a critical problem, reflecting their higher rejection rates and indicating there were still groups of firms that faced issues in accessing the finance they needed.

SMEs were asked what the most pressing problem currently facing their business was (Figure 29). The most commonly cited problems were finding customers, the current economic climate, UK exit from the EU, cash flow problems/late payment and availability of skilled or experienced managers. Access to finance was cited as the most pressing problem by three per cent of businesses surveyed. A lack of funding was cited by a further one per cent.

The results by business size band, business type (high growth, exporter and new starts) and location (urban/rural) were all in line with the all firm average. Looking at the sectors, a higher proportion of businesses in the 'other services' sector (6 per cent) rated access to finance as the most pressing problem for their business. For all other sectors, the proportion was broadly in line with the all firm average.

Base: All SMEs, 1003

Businesses were also asked the extent to which obtaining finance and the cost of finance presented a problem to their business on a scale of 1-10 where 1 was no problem and 10 was a critical problem (Table 4). Almost half of all SMEs surveyed said finance presented no problem and only two per cent said it was a critical problem. However, around a quarter (27 per cent) of businesses rated obtaining finance and the cost of finance as '5 or more' on the 1-10 scale.

Base: All SMEs, 1003

Whilst just two per cent of SMEs overall rated finance as a critical problem, the results differed somewhat by business size, sector and firm type.^[102] A higher proportion of medium-sized businesses (15 per cent), manufacturing businesses (13 per cent) and exporters (4 per cent) reported obtaining finance and the cost of finance as a critical problem, reflecting the higher rejection rates of these firms outlined in chapter 7, and indicating there were still groups of firms that face issues in accessing the finance they need. For all the other business sizes, sectors and firm types, the results were broadly in line with the all-firm average.

9.2 Bank branch closures

Given the shift to online banking and the number of bank branch closures in recent years, a number of new questions were added to the 2019 survey to understand the importance of local branches to SMEs and to consider whether, and in what way, the closures were affecting them.

Local bank branches were considered more important by rural and agriculture SMEs

The availability of a local bank branch was cited as important (very important or quite important) by over two thirds of all SMEs surveyed (68 per cent). Availability was perceived as more important to rural SMEs (77 per cent) compared to the average for all SMEs (Figure 30). This reflects findings from 2018 research undertaken by Highlands and Islands Enterprise^[103] which highlighted the value that rural SMEs place on face-to-face transactions as well as the challenges that some rural SMEs face with broadband access and connectivity and their capacity and willingness to engage with online banking.

A lower proportion of small (51 per cent) and medium-sized (50 per cent) businesses cited local bank branches as important when compared to SMEs as a whole. Compared to the average for all SMEs, a lower proportion of exporters and new starts perceived local bank branches as important (51 per cent of each). Considering findings by sector, a higher proportion of SMEs in the agriculture (90 per cent), wholesale/retail (80 per cent) and other services (74 per cent) sectors considered bank branches to be important when compared for the all-sector average. Conversely, a lower proportion of SMEs in the business activities sector (44 per cent) considered them to be important compared to the all-sector average.

Base: All SMEs, 1003

A higher proportion of rural SMEs felt bank branch closures were affecting their ability to access finance

A quarter (26 per cent) of SMEs surveyed felt bank branch closures were affecting their business' ability to access finance (Figure 31). Compared to the all-firm average, a higher proportion of rural businesses (33 per cent) felt branch closures were affecting them. Conversely, a lower proportion of small (19 per cent) and medium-sized (1 per cent) businesses and exporters (17 per cent) felt branch closures were affecting them.^[104] The results by sector were all broadly in line with the all-firm average.

Base: All SMEs: all n=1003; urban n=693; rural n=310

The ways in which SMEs felt bank branch closures affected their business differed to some extent for urban and rural firms however difficulties in depositing cash and obtaining tailored financial advice were common to both

SMEs who stated bank branch closures were affecting their business' ability to access finance were asked the ways in which this was happening (Figure 32). For SMEs as a whole, the most commonly reported answer was 'more difficult to deposit cash' followed by 'tailored financial advice less accessible'.

The ways in which SMEs feel bank branch closures have affected their business differed to some extent by location. Whereas 'difficult to access money' was the most commonly reported answer by rural firms (37 per cent), it was only cited as an issue for three per cent of urban firms. However 'made it more difficult to deposit cash' and 'meant tailored financial advice was less accessible' featured in the top three issues for both urban and rural firms.^[105]

Base: All who think bank closures have impacted them: All n=261; urban n=171; rural n=90