Finance · 4 October 2018

A fear of the future is holding back innovation among small businesses

fear of the future
Fewer businesses introduced new products or services in 2018 compared to the previous year

Fear of the future is putting the squeeze on SME finance and innovation, according to a new study, with demand for external finance limited.

The latest figures from BVA BDRC’s SME Finance Monitor for the second quarter of 2018 found that only 4% of SMEs had applied for some form of new or renewed finance, such as loan or overdraft, typically from their main bank, over the last 12 months.

Overall, 15% of SMEs reported some form of borrowing “event” but most had been “happy non-seekers” of finance.

Over a quarter of small business owners had received an injection of personal funds into the company, with 36% using trade credit – up from 31% in 2014. Just under a quarter held more than £10,000 in credit balances stating that this reduced their need for external finance.

Just over half of small business owners felt that the future felt uncertain and, as such, they were being very cautious with their plans for the business.

Over three-quarters of SMEs reported making a profit, with four in ten having grown in the past 12 months. Just under half – 47% – planned to grow in the next 12 months, increasing by size of SME from 44% of those with 0 employees to 81% of those with 50-249 employees.

referral finance


Refused a bank loan? These small businesses accessed finance through the Bank Referral Scheme

Initially launched in November 2016, the Bank Referral Scheme was designed to help small business owners access finance if bank lenders were unable to offer what they needed.


However, fewer SMEs have been innovative with the proportion which have either significantly improved an area of the business and/or introduced a new product/service declining from 40% in 2012 to 32% in 2018.

Two-thirds said their business was recognisably the same as three years ago.

The 26% of SMEs that said their business had developed quite a bit in the last three years were more likely to have been innovative, and to be planning to grow. The remaining 11% of SMEs said their business had retrenched back to its core business.

“SMEs are showing some signs of caution in the face of an uncertain future,” said Shiona Davies, director at BVA BDRC.

“Demand for finance remains limited but there is no single reason for this. It is likely to be a combination of confidence, attitudes to finance, the availability of other funding such as trade credit and other factors including awareness of finance options available.

“It is also difficult to say with certainty what the impact of this might be on business performance, but levels of innovation have declined over time.”

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