2019 Business Finance Survey: SMEs

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2019 Business Finance Survey:SMEs@britishbbank Ipsos MORI 2019 Business Finance Survey: SMEs February 2020 Version 1 Internal and Client Usewww.british-business-bank.co.uk

Contents349BackgroundGrowthEU Exit202349Awareness of theBritish .co.ukFinance UseEquity Finance215Awareness ofFinance54Perceptions ofRaising Financeand Future Use

BackgroundIn 2012, BIS commissioned a new surveyexploring the stages SMEs go through whenconsidering the need to raise external finance(1,500 SMEs interviewed by CATI).The British Business Bank repeated thesurvey in 2014 (1,000 SMEs interviewed), in2015 (1,608 SMEs), 2016 (1,535 SMEs), in2017 (2,070 SMEs) and 2018 (2,000 SMEs).The 2019 survey is based on 4,003 SMEinterviews from 27th August to 25thNovember. Two versions of the questionnairewere used. Some new questions were addedbut core questions remain the same enablingcomparison over time.Statistically significant changes between the2018 and 2019 surveys (at 95% confidencelevel) are identified by green arrows(increases) and red arrows .co.uk3


One in five SMEs has grown over the past 12 monthsGrowth of business turnover or in the number of employees in past 12 months (%)Proportion of firms with 3 years of20% growth ( 2% of SMEs)20% growth in previous twoyears (among firms with 20% growth in past year)Grown by20% ormoreGrown10% - 20%Grown byup to 10%Stayed aroundthe same sizeBecomesmallerYesNoDon't know65105636%63%1%22Highest/lowest growth21%have grown overall(lower than 30% in both2018 and 2017)Yorkshireand theHumberHigher than45% in 2018Base all SMEs in business 2 years (n 3,951), Question B4. All SMEs grown 20 % past 12 months (n 272). Question B4/B5. (single code, prompted). Question updated in 2019@britishbbankto include growth of the number of employees in addition to turnover only (as per 2018).www.british-business-bank.co.uk5London30% 16%

Growth expectations are less buoyant than in 2018, especially among SMEswithout employees. More SMEs expect to remain the same sizeGrowth expectations – by number of employees (%)Expect togrowAllNo employees7857Micro (1-9)11Small (10-49)12Medium (50-249)1474912101213Grow 20% Same size195119204427133832937Grow 10%-20%Shrink/sell/close6428%423%340%252%253%28% of businesses expect togrow over the next 12months (lower than 36% in2018 and 35% in 2017)SMEs without employees arethe least optimistic, with afifth (20%) expecting toshrink, sell or close thebusiness, compared to only6% of medium-sized SMEsGrow up to 10%Don't know/otherSig higher than 2018Sig lower than 2018Question B6 (single code, prompted). Base all SMEs (n 2000), No employees (n 823), Micro (n 690), Small (n 316), Medium (n 171).Note: ‘expect to grow’ combination is subject to rounding so may not equal the sum of figures presented on the 6

Recruiting and retaining skilled staff is less likely to be reported as anobstacle than 2018Obstacles in the next 12 months (%)Issues recruiting andretaining skilled staff64Access to external finance1159Availability of relevantadvice for your business1653Cash flow or issues with latepayment467222465 4 3114 4 33135 323128% One - not an obstacle at all% Two to four% Five% Six to seven% Eight to nine% 10 - a major obstacle% Don't know6 32ModerateobstacleSignificantobstacle6-76% in 20196% in 20188 8% in 201910% in 20186-74%8 6%6-75% in 20195% in 20188 5% in 20195% in 20186-78% in 20198% in 20188 9% in 20199% in 2018Sig higher than 2018Sig lower than 2018Question B8 (single code, prompted). Base all SMEs (n k7

Political uncertainty and current economic climate are seen as the greatestobstaclesModerateobstacleObstacles in the next 12 months (%)1431Political uncertainty/government policy22%%%%14141929Legislation, regulation andred tapeThe current economicclimate1534The UK leaving theEuropean Union18111618One - not an obstacle at allFiveEight to nineDon't know10121215101346-79%8 23%1546-711%8 27%36-712%8 21%10 26-715%8 25%1115% Two to four% Six to seven% 10 - a major obstacleQuestion B8 (single code, prompted), all new codes in 2019. Base all SMEs (n k98Significantobstacle

EU Exit@britishbbankwww.british-business-bank.co.uk

Note on methodologyAs in previous years, this section of the SMEFinance Survey asked firms about thepotential impacts of the UK leaving the EU.The survey was in the field between the endof August and November. Interviews werecompleted before and after conclusion of theWithdrawal Agreement between the UK andEU on 17 October 0

On balance, SMEs were pessimistic when asked about the impact of leavingthe EU on growth, though the majority reported it would not affect themReported expectations for growth as result of the UK leaving EU - by number of employees (%)2018 More/Less 848% More% Neither34% Less10% Don't know/Refused6%/31%Businesses aged fiveyears or younger weremore pessimistic - 36%reported they expectedto ‘grow less’ comparedto 25% of those tradingmore than 20 yearsEmployers were morelikely to reportexpected lower growth.Growth expectationswere also lower amongthose that exported to(44%) and importedfrom (42%) the EUBase all SMEs (n 2,000 in 2019, n 2,000 in 2018; no employees n 823 in 2019, n 821 in 2018; employees n 1,177 in 2019, n 1,179 in 2018. Question C6 (single code, o.uk11

13% of SMEs overall reported they expected to make changes as a resultof the UK leaving the EUExpected increase/decrease as result of leaving EU – of those that expected to make changes (%)All58No employees*Higher amongdistribution(78%) andlower amongbusinessservices stment19Staff numbers11Prices91310Exports4Investment2Staff numbers920Prices122Exports13Staff numbersPrices166Investment5Amongst thoseSMEs that expectedto make changes,the most oftenreported wasincrease in prices(58%)Expected to make apositive* change 10%Expected to make anegative* change 24%Base All firms that had made or expected to make any changes to investment, exports, staff numbers or prices as a result of the UK leaving the EU. (n 322; no employees n 82* (NOTE:LOW:BASE), employers 240). Question C7 (multi code, prompted). Note: % that expected to make any positive/negative change are aggregate measures and cannot be calculated from the@britishbbankchart data above. *[Positive/negative] expected changes included [increase/decrease] staff numbers, investment or exports.www.british-business-bank.co.uk12

More than five SMEs reported that the impact on sales would be negativefor every one SME that expected a positive impactExpected impact of UK leaving the EU on sales – by number of employees (%)In 2018: 16% reported it had already affected sales24% reported it would affect sales in the next 12 months62% predicted no effectExpected impact of UK leaving the EU onsales by region and nation (%)IncreaseNorthAll562286MidlandsSouth(excl. London)No . Ireland% Increase% No effect% DecreaseNo effect676324466272356336304% Don't know136324Question C11 (multi code, unprompted). Base all SMEs (n 2000), No employees (n 823), employees (n 1,177). Note: ‘Increase’ includes responses “Yes – had already increased sales” and“Yes – expected sales to increase”. ‘Decrease’ includes responses “Yes - had already decreased sales” and “Yes – expected sales to average

Approximately one third of SMEs reported obtaining equity or debt financewould be more difficultExpected impact of UK leaving the EU on obtaining debt and equity (%)More difficult/easier (%)Debt13Equity112522% A lot more difficult% No impact% A lot easier39353141202737%/5%33%/5%% A little more difficult% A little easier% Don't know/RefusedSig higher than 2018Sig lower than 2018Businesses under ten years oldwere more likely to have expectedobtaining external finance would bemore difficult (45% for debt and44% for equity)The share of micro firms thatreported it would be ‘a lot moredifficult’ to obtain debt finance(14%) was higher than 2018 (10%)There was a decline in the share ofmedium sized businesses thatexpected no impact (37% downfrom 49% in 2018)High proportion of ‘don’t know’suggested SMEs were unclear onhow EU Exit would impact theirability to obtain financeBase all SMEs (n 2,000 In 2019, n 2,000 in 2018. Question C14 (single code, prompted). Note: combined easier/more difficult are subject to rounding so may not equal the sum of figurespresented on the chart. ‘More difficult’ includes the responses “A lot more difficult to obtain” and “A little more difficult to obtain”. ‘Easier’ includes the responses “A little easier to obtain” and “A lot@britishbbankeasier to obtain”.www.british-business-bank.co.uk14

Awareness of k

Awareness of leasing/hire purchase is substantially higher than otherforms of external financeAwareness of forms of external finance 2016-2019 (%)84Leasing/hire purchasingLeasing/hire purchasing(asset ts626450Equity crowd fundingEquity crowd funding platformsplatforms*5139Market place lendinglending(alsoMarketknownplaceas peertopeer A majority of SMEs(88%) are aware of atleast one of the six keyfinance types, but onlyone in twenty (5%) areaware of all sixAwareness of the sixfinance types is higheramong SMEs withemployees, and thosein the production andbusiness servicesectors201638121213Sig higher than 2018Sig lower than 2018Base all SMEs (n 4,003 in 2019, n 2,000 in 2018 n 2,070 in 2017, 1,535 in 2016). Question A1 (multi code, prompted). *Note “Peer-to-peer lending” and “Crowd funding platforms” in@britishbbank2017-18. Note: Awareness of credit cards highest (94%).www.british-business-bank.co.uk16

Awareness of who to approach for specific products is generally lower thanin 2018Aware of who to approach for forms of external finance 2016-2019 (%)Leasing/hireLeasing/hire purchasingpurchasing (asset(asset inglending**to 3201612555Sig higher than 2018Sig lower than 2018Base all SMEs (n 4,003 in 2019, n 2,000 in 2018 n 2,070 in 2017). Question A2 (multi code, prompted). *Note: “Peer-to-peer lending” and “Crowd funding platforms” in uk17

SMEs most commonly use their own knowledge and previous experiencewhen choosing which provider to approachSources of information that influenced decision among those who’ve sought finance in thepast three years (%)3130SelfBank or 33521221312% Influenced decision ontype of finance% Main influence on typeof finance4% Influenced decision onspecific provider toapproach333152020More businesses arerelying on their selfknowledge andprevious experiencewhen choosing thetype of finance thanin 2018.Banks and financeproviders are lessinfluential on whichprovider toapproach.Sig higher than 2018Sig lower than 2018Base all SMEs who sought finance in the last three years (n 755), all SMEs did not seek finance in the last three years (n 1,254). Question A16 and Question A18 (multi code, unprompted).Question A17 (single code, unprompted). Other includes: ‘Word of mouth/experience of colleagues/ peers etc. in obtaining finance’;’ Information from provider / supplier / dealer /@britishbbankmanufacturer’; ‘Only available option / most likely to be approved’; ‘Emails / mailshots’, Other (specify).www.british-business-bank.co.uk18

Those who have not sought finance previously are more likely to say theywould rely on an advisor to help make that decisionMain source of information to influence decision on which type of finance to apply for? (%)31Self617Bank or er% Main influence on type of finance(among those who have sought financein the last 3 years)% Main influence on type of finance(among those who haven't soughtfinance in the last 3 years)10311515Base all SMEs who sought finance in the last three years (n 755), all SMEs did not seek finance in the last three years (n 1,255). Question A17 (single code, unprompted). Other includes:‘Word of mouth/experience of colleagues/ peers etc. in obtaining finance’;’ Information from provider / supplier / dealer / manufacturer’; ‘Only available option / most likely to be approved’;@britishbbank‘Emails / mailshots’, Other (specify).www.british-business-bank.co.uk19

Awareness of theBritish Business Bank@britishbbankwww.british-business-bank.co.uk

A large majority of SMEs are not aware of the British Business Bank. Fourin ten SMEs say they would consider contacting the Bank for informationAware of BBB (%)84Medium-sizedSMEs are morelikely to beaware of theBank (22%),as are those inthe businessservice sector(20%)Would considercontacting BBB forinformation aboutexternal finance (%)3662435516Yes - awareNo - notawareAware ofBBBBase all SMEs (n 4,003 in 2019). Question D12 and 13 (single code, o.uk21Not aware ofBBBWould consider contactingWould not consider contactingDon’t knowSMEs with employees are more likelyto consider contacting the Bank (53%compared to 39% for those withoutemployees), as are businesses in theproduction sector (48%)Businesses aged 9 years or under arealso more likely to considercontacting the Bank (56% comparedto 38% of those aged 10 years ormore)

Just under half of SMEs aware of the Bank agree it is clear what the Bankstands for and the Bank encourages them to seek finance suited to their needsPerceptions of the British Business Bank among those aware of the Bank (%)The Bank encourages SMEs to seekfinance best suited to their needs1233It is clear what the Bank stands for1430The Bank is an impartial source ofinformation around businessfinance in the UKThe Bank is reliable andtrustworthyThe Bank supports the needs ofSMEs in my region637962422183232Strongly agreeNeither agree nor disagreeStrongly disagreeagree/disagree (%)51239275 323617224 47 4283345/644/1543/831/823/10Tend to agreeTend to disagreeDon’t knowBase all SMEs aware of the British Business Bank (n 320 in 2019). Question D14 (single code, prompted). Note: ‘agree/disagree’ combination is subject to rounding so may not equal the sum@britishbbankof figures presented on the chart.www.british-business-bank.co.uk22

Finance Use@britishbbankwww.british-business-bank.co.uk

Personal savings continue to be by far the most commonly used source offinance to establish a businessFinance used in establishing business if started in last five yearsTop mentions (%)% personal savings - 2017-2019Loan from bank/buildingsociety/finance company722019Personal savings728620182017666% personal savings – by age of businessesCredit card6Up to 2 years3-5 yearsHigher amongemployers (15%) thannon-employers (1%)5677Sig higher than previous yearSig lower than previous yearBase all SMEs who started business in last five years (n 185 in 2019). Question A3 (multi code, prompted). Those not shown 5% or 4

The proportion of SMEs seeking external finance in the last 3 years hasgrown among employers and in the construction sectorSought external finance in the previous three years - by employee size and sector (%)AllNo employeesAll4444Production3846ConstructionMicro (1-9)61DistributionSmall (10-49)Medium (50-249)5373Business services83Other services434043Sig higher than 2018Sig lower than 2018Base all SMEs (n 4,003 in 2019, n 2,000 in 2018) .No employees (n 1,633 in 2019, 821 in 2018); micro (n 1381 in 2019 , 667 in 2018); small (n 646 in 2019 , 311 in 2018); medium@britishbbank(n 343 in 2019, 201 in 2018). A6a BB (single code, prompted).www.british-business-bank.co.uk25

Credit cards and mortgages continue to be most commonly sought frombanksSeeking finance from bank vs. another sourceBankAnother sourceDon’t know54169699249Credit cards262645Credit Cards10Commercial mortgageCommercial MortgageInvoice finance or factoringInvoice finance orfactoring3Leasing or hire purchaseLeasing or hire purchaseBase all SMEs who sought each form of non-bank finance (n 477 for credit cards/n 90 for commercial mortgage *NOTE: LOW BASE /n 74 for invoice finance or factoring *NOTE: LOW BASE/n 507 for leasing or hire purchase. Data not shown for finance categories with a base below 30. Question A6c (single code, o.uk26

Use of external finance and the type of finance sought on last occasionremain in line with 2018% Finance currently use and sought on last occasionSought on last occasionCurrently useCredit card finance141599Bank loan88Loans from directors/anotherindividual/organisationGovernment or local governmentgrants22201515Leasing/hire purchasePrivate lending / finance company201819172526Bank overdraft2019111036361218442352Sig higher than 20185358% of SMEs arecurrently using someform of external finance30% are using a bankoverdraft or loan, whilst50% are using some formof non-bank finance (downfrom 56% in 2018)SMEs with employees aremore likely to use externalfinance (73%) than thosewithout employees (53%)SMEs in the constructionsector are more likely thanaverage to use some formof external finance (69%)Sig lower than 2018Base All SMEs (n 4,003 in 2019) Question A6a AA (multi code, prompted). All SMEs that sought finance in the last three years (n 1,503 in 2019). A11b (multi code, unprompted). Those not@britishbbankshown less than 5% for both currently use or sought.www.british-business-bank.co.uk27

Over a third of SMEs seek finance for working capital, compared to threein ten seeking to finance purchase of fixed assets% Main reason for seeking finance - last occasion in last three yearsWorking capital/ cashflow37Purchase fixed assets30To make improvements, upgrades orrepairs to the premises7Investment in improved goods orservicesExpansion53Refinancing2Start business2Investment in improved process2Something else3SMEs in construction sector aremore likely than average toseek finance to purchase fixedassets (45%), whereas SMEs inproduction are less likely (20%)Higher among those who havegrown in the past 12 months(4%) and those who havegrown 20 % in the past 12months (11%)Most common reasons for seekingworking capital is to continuetrading or for the generalrunning of business (56%), aswell as to cover a short-term gapin funds (41%)Most common reasons forrefinancing are to keep businessopen or expand the business(50%), as well as to look for abetter deal (32%) or invest in anew or significantly improvedprocess (21%)*Base all SMEs that sought finance in the last 3 years (n 755 in 2019). Question A13b (single code, prompted). Those 1% or less not shown. All SMEs seeking finance for working capital (n 332 in2019) Question A14 (multi code, prompted). All SMEs seeking finance for refinancing (n 39 in 2019, *NOTE: LOW BASE), Question A15 (multi code, o.uk28

Working capital and capital for making improvements to the business ismore likely to be sought from the big five banks%

Base all SMEs in business 2 years (n 3,951), Question B4. All SMEs grown 20 % past 12 months (n 272). Question B4/B5. (single code, prompted). Question updated in 2019 to include growth of the number of employees in addition to turnover only (as per 2018). 30% Yorkshire and the Humber London 21% 16% have grown overall (lower than 30% in both 2018 and 2017) Highest/lowest growth Higher than .

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