SMEs avoid seeking external finance "for fear of being rejected"

Its research found that a "decreasing trend exists from 2015 to 2017", with demand flatlining in 2018. 13% of businesses surveyed sought external finance in 2015, falling to 9% by 2017 and 2018.

The decline in the proportion of SMEs seeking external finance was consistent across each broad sector and size-band. The report says this decreasing trend may reflect subdued business expectations regarding their prospective growth, alongside other factors such as uncertainty and market volatility.

When asked, SMES said factors related to uncertainty and risk remain the most important in driving their decisions not to seek for external finance.

Nonetheless, the fear of rejection, the second most important factor, has become more prevalent while the anticipated cost and the required time and effort involved in the process were also important.

Michael Biemann, CEO of business finance provider, Selina Finance, commented: “What this data shows very clearly is the impact of Brexit uncertainty on SMEs’ appetite for external finance.

“It’s something that’s affecting SMEs of all sizes across all sectors, and confirms that many businesses are choosing to sit tight.

“What’s of particular concern is the growth in the number of firms not seeking external finance for fear of being rejected.

“On the high street there’s a definitive tightening in criteria and a growing conservatism and so this fear is not misplaced.

“What’s also worrying is that a lot more companies in 2018 didn’t seek external finance because they felt it would take too long and be too much hassle.

“This perception alone is a damning indictment of the high street banks. It also helps explain why businesses are increasingly looking to alternative and more nimble forms of finance.”