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2018 Business Finance Survey: SMEs - British Business Bank

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This survey, undertaken by Ipsos MORI for the British Business Bank, follows on from the previous “SME Journey” surveys from 2012 to 2017 to explore SME awareness of different types of external finance and their experience of raising finance.
It feeds into the British Business Bank’s 2018/19 Small Business Finance Markets report to assess how finance markets have changed.
The survey includes new data on the awareness and use of finance by smaller businesses, as well as information on the growth plans of those businesses.

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2018 Business Finance Survey: SMEs - British Business Bank

  1. 1. www.british-business-bank.co.uk @britishbbank 2018 Business Finance Survey: SMEs February 2019
  2. 2. www.british-business-bank.co.uk @britishbbank 2 Contents • Background – page 3 • Growth – page 4 • EU Referendum – page 11 • Awareness of Different Types of Finance – page 21 • Finance Usage and Application – page 25 • Perceptions of Raising Finance and Future Use – page 51 • Equity Finance – page 57 • Invoices and Late Payment – page 62 • Summing Up – page 68
  3. 3. www.british-business-bank.co.uk @britishbbank 3 Background • In 2012, BIS commissioned a new survey exploring the stages SMEs go through when considering the need to raise external finance and the specific actions they take (1,500 SMEs interviewed by CATI) • The British Business Bank repeated the survey in 2014 (1,000 SMEs interviewed), in 2015 (1,608 SMEs), 2016 (1,535 SMEs) and in 2017 (2,070 SMEs) • 2018 survey is based on 2,000 interviews with SMEs in September and October. Some new questions were added, but core questions remain the same enabling comparison over time • Statistically significant changes between the 2017 and 2018 surveys (at 95% confidence level) are identified by green arrows (increases) and red arrows (decreases)
  4. 4. www.british-business-bank.co.uk @britishbbank 4 Growth
  5. 5. www.british-business-bank.co.uk @britishbbank 5 Three in ten SMEs grew in the past 12 months 7% 37% 56% % Growth of business turnover in past 12 months 8% 8% 14% 45% 23% Grown by 20% or more Grown between 10% and 20% Grown by up to 10% Stayed around the same size Become smaller Has turnover grown 20+% for previous 2 years? Base = all SMEs in business 3+ years (n=1,927), Question B4. All SMEs grown 20+% past 12 months (n=200). Question B4/B5. (single code, prompted) Yes No Don’t know Proportion of firms with 3 years of 20%+ growth
  6. 6. www.british-business-bank.co.uk @britishbbank 6 Expect to grow turnover in next 12 months SME growth expectations in line with those seen in 2017 Base = all SMEs (n=2,000 In 2018), no employees n=821, micro n=667, small n=311, medium n=201. Question B6 (single code, prompted). C1/C2. 9 8 11 14 10 9 8 12 13 15 18 16 25 27 41 44 46 38 35 26 18 20 10 8 4 3 3 3 3 3 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% All No employees Micro (1-9) Small (10-49) Medium (50-249) % Grow substantially (20%+) % Grow significantly (10%-20%) % Grow moderately (up to 10%) % Same size % Shrink/sell/close % Don't know/Other 36% 31% 48% 54% 67% % Expect to grow moderately or better 21% have exported in past 3 years 23% plan to export in next 3 years
  7. 7. www.british-business-bank.co.uk @britishbbank 7 Growth expectations among SMEs that have exported in past 3 years – by number of employees SMEs that have exported in the past three years have higher growth expectations Base = all SMEs who exported in the past 3 years (n=506 exporters in 2018, 1487 non-exporters), no employees exporters n=162, non-exporters n=658; micro exporters n=162, non-exporters n=503; small exporters n=105, non-exporters n=205; medium exporters n=77, non-exporters n=121. Question B6 (single code, prompted). 17 16 20 14 9 14 14 14 16 17 18 16 20 29 43 34 33 37 31 26 16 20 7 8 5 2 3 2 4 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% All No employees Micro (1-9) Small (10-49) Medium (50-249) % Grow substantially (20%+) % Grow significantly (10%-20%) % Grow moderately (up to 10%) % Same size % Shrink/sell/close % Don't know/Other 49% 46% 54% 59% 69% % Expect to grow moderately or better 32% 28% 47% 51% 66% Non- Exporters Exporters
  8. 8. www.british-business-bank.co.uk @britishbbank 8 Similarly, those planning to export are more optimistic regarding growth potential Base = all SMEs to plan to export in the next 3 years (n=531 in 2018, 1431 non-exporters), no employees exporters n=171, non-exporters n=632; micro exporters n=172, non-exporters n=485; small exporters n=107, non-exporters n=197; medium exporters n=81, non-exporters n=117. Question B6 (single code, prompted). 20 20 22 15 9 13 12 13 16 18 20 20 19 30 41 31 28 38 29 28 12 15 6 6 5 4 4 2 4 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% All No employees Micro (1-9) Small (10-49) Medium (50-249) % Grow substantially (20%+) % Grow significantly (10%-20%) % Grow moderately (up to 10%) % Same size % Shrink/sell/close % Don't know/Other Growth expectations among SMEs planning to export in next 3 years – by number of employees 31% 26% 46% 49% 66% Non- Exporters 53% 52% 54% 61% 68% Exporters % Expect to grow moderately or better
  9. 9. www.british-business-bank.co.uk @britishbbank 9 Small and medium-sized businesses more optimistic about trading conditions than micro businesses and sole traders Base = all SMEs (n=2,000 in 2018) no employees n=821, micro n=667, small n=311, medium n=201. B7 (single code, prompted). Expectations for the business’ trading conditions in the next 12 months 5 5 7 8 8 15 14 16 22 23 47 48 43 45 44 19 18 21 15 20 9 9 8 5 3 6 5 5 4 1 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% All No employees Micro (1-9) Small (10-49) Medium (50-249) % Significantly better % Slightly better % About the same % Slightly worse % Significantly worse % Don't know/Refused 20% 19% 23% 30% 31% Better
  10. 10. www.british-business-bank.co.uk @britishbbank 10 Base = all SMEs (n=2,000). Question B8 (single code, prompted) Obstacles in the next 12 months 60 48 54 11 21 20 8 13 13 6 8 5 6 6 3 4 3 2 5 1 3 0 10 20 30 40 50 60 70 80 90 100 % One - not an obstacle at all % Two to four % Five % Six to seven % Eight to nine % 10 - a major obstacle % Don't know 6-7 8% in 2018 9% in 2017 6-7 5% in 2018 5% in 2017 6-7 6% in 2018 6% in 2017 Around one in ten view recruitment and cash flow / late payment as significant obstacles Moderate obstacle 8+ = 9% in 2018 8% in 2017 8+ = 5% in 2018 6% in 2017 8+= 10% in 2018 9% in 2017 Significant obstacle Issues recruiting and retaining skilled staff Cash flow or issues with late payment Availability of relevant advice for your business
  11. 11. www.british-business-bank.co.uk @britishbbank 11 EU Referendum
  12. 12. www.british-business-bank.co.uk @britishbbank 12 6 6 6 56 57 53 29 29 31 9 8 10 0 10 20 30 40 50 60 70 80 90 100 All No employees Employees % More % Neither % Less % Don't know/Refused Grow more/less as result of leaving EU - by number of employees Base = all SMEs (n=2,000 In 2018, n=2,070 in 2017; no employees n=821 in 2018, n=855 in 2017 ; employees n=1,179 in 2018, n=1,215 in 2017. Question C6 (single code, prompted) 5%/22% 5%/21% 5%/25% SMEs are more pessimistic about the impact of leaving the EU on growth than in 2017, although the majority see no impact 2017 More/Less
  13. 13. www.british-business-bank.co.uk @britishbbank 13 5 33 222 7 4 5 14 10 11 EmployerNo employeesAll Under a fifth of SMEs have made changes as a result of leaving the EU Base = all SMEs (n=2,000 In 2018). Question C7 (multi code, prompted). SMEs who have already made changes as result of leaving EU - by number of employees 17% have already made changes. More likely for those with employees (22% vs. 15% with no employees) % exports % investment plans % prices of goods and services % staff employed
  14. 14. www.british-business-bank.co.uk @britishbbank 14 8 4 5 5 44 7 5 6 20 17 18 EmployerNo employeesAll Around one in four plan to make changes, with more planning changes to investment and staff Base = all SMEs (n=2,000 In 2018). Question C8 (multi code, prompted). SMEs who plan to make changes as result of leaving EU - by number of employees 27% plan to make changes. More likely for those with employees (32% vs. 26% with no employees) % exports % investment plans % prices of goods and services % staff employed
  15. 15. www.british-business-bank.co.uk @britishbbank 15 Most SMEs have not seen any impact on sales so far but more expect sales will be affected Base = all SMEs (n=2,000 in 2018, Production n= 310, Construction n = 328, Distribution n=450, Business services n=598, Other services n=314). Question C11 (multi code, prompted) Impact of leaving EU on sales by sector 22% 26% 24%24% 22% 24% 12% 20%21% 12%11% 16% Other servicesBusiness services DistributionConstructionProductionAll % Yes - will affect sales in next 12 months % Yes - already affected sales Total yes has/will affect sales: 32% 28% 30% 35% 37% 27% % Yes - already affected sales % Yes - will affect sales in next 12 months
  16. 16. www.british-business-bank.co.uk @britishbbank 16 12%8%15%10%17% 4%12% 7% 5% 10% 85%79%78% 84% 73% 14%10%6% 15%14% 10% 8% 25%8%10% 76%82% 70% 78%76% Employees Noemployees Medium Small Micro 11% 8% 80% Among SMEs expecting a change to sales, more expect a fall in sales in the next 12 months than in 2017 Impact of leaving EU on sales by size (employees) and sector Base = all who already had or expect to have changes to sales (n=638 in 2018, Micro n=225, Small n=96, Medium n=59, No employees n=258, Employees n=380, Production n=101, Construction n= 105, Distribution n=158, Business services n=203, Other services n=71) Question C12 (single code, prompted). All SMEs (n=2000 In 2018). % Don’t know/Refused% Increase sales% Decrease sales Micro Small Medium No employees Employees Production Construction Distribution Business Services Other services All
  17. 17. www.british-business-bank.co.uk @britishbbank 17 13% 67% 20% Don’t know Employers more likely to report scaling back investment in 2018 Base = All employers who have already made or plan to make changes to investment (n=122 in 2018) Question C9 (single code, prompted). All employers who have already made or plan to make changes to staff employed (n=164 in 2018) Question C10 (multi code, prompted) Changes to investment and staff as a result of leaving the EU – employers only 42% 38% 32% 23% 20% 19% 18% 11% 6% Hire fewer new staff than would have been the case Invest in training/ upskilling staff Use staff on different contracts Make staff redundant Decrease number of hours of existing staff Hire more new staff than would have been the case Increase number of hours of existing staff Other Don’t know/Refused Changes to staffChanges to investment A greater amount A smaller amount 23% said a greater amount and 54% a smaller amount in 2017
  18. 18. www.british-business-bank.co.uk @britishbbank 18 1 3 2 7 7 5 7 10 4 59 63 56 61 56 65 21 10 28 17 23 19 11 17 10 15 8 12 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% All Production Construction Distribution Business services Other services % Increase sales by more than 20% % Increase sales up to 20% % Decrease sales up to 20% % Decrease sales by more than 20% 3 There is a rise in the share of those expecting a decrease in sales of over 20% Impact of leaving EU on sales Base = all SMEs that have or expect changes to sales as a result of leaving EU (n=638 In 2018, n=558 In 2017; Production n=101 in 2018, n=100 in 2017; Construction n= 105 in 2018, n= 51 in 2017; Distribution n=158 in 2018, n=159 in 2017; Business services n=203 in 2018, n=196 in 2017; Other services n=71 in 2018, n=49 in 2017). Question C12 (single code, prompted). 16%/8% 15%/10% 27%/5% 14%/7% 13%/12% 18%/4% Increase 2017/18 % Don’t know/Refused
  19. 19. www.british-business-bank.co.uk @britishbbank 19 One-third of SMEs think obtaining equity or debt finance will be more difficult Base = all SMEs (n=2,000 in 2018). Question C14 (single code, prompted) Impact of leaving EU on obtaining debt and equity 12 11 24 23 42 37 2 2 1 1 18 25 0 10 20 30 40 50 60 70 80 90 100 % A lot more difficult % A little more difficult % No impact % A little easier % A lot easier % Don't know/Refused More difficult/ easier 36%/3% 34%/3% Debt (e.g. overdraft, bank loan) Equity
  20. 20. www.british-business-bank.co.uk @britishbbank 20 Among SMEs expecting a change to exports, there is rise in the share of those expecting a decrease in exports, with a sharp increase of ‘don’t knows’ Impact of leaving EU on exports Base = all SMEs who have already made or plan to make changes to exports as a result of leaving EU (n=124 in 2018). Question C13 (single code, prompted). 61% / 11%30 31 7 4 28 0 10 20 30 40 50 60 70 80 90 100 Decrease exports by more than 20% Decrease exports up to 20% Increase exports up to 20% Increase exports by more than 20% % Don't know/Refused Decrease / increase
  21. 21. www.british-business-bank.co.uk @britishbbank 21 Awareness of Different Types of Finance
  22. 22. www.british-business-bank.co.uk @britishbbank 22 Awareness of forms of external finance 2016-2018 Encouragingly, awareness of almost all external forms of finance has increased significantly since 2017 89% 69% 70% 52% 41% 12% 86% 62% 60% 47% 32% 12% 88% 64% 51% 45% 38% 13% Leasing/hire purchase Venture capitalists Crowd funding platforms (a) P2P lending Business angels Mezzanine finance 2018 2017 2016 Base = all SMEs (n=2,000 in 2018 n=2,070 in 2017/n=1,535 in 2016). Question A1 (multi code, prompted). Note (a) “Equity crowd funding platforms” in 2016
  23. 23. www.british-business-bank.co.uk @britishbbank 23 Aware of who to approach for forms of external finance 2016-2018 Awareness of who to approach for specific products has also increased significantly 53% 33% 22% 21% 14% 6% 47% 25% 17% 17% 10% 5% 56% 22% 19% 18% 12% 5% Leasing/hire purchase Crowd funding platforms (a) Venture capitalists P2P lending Business angels Mezzanine finance 2018 2017 2016 Base = all SMEs (n=2,000 in 2018 n=2,070 in 2017/n=1,535 in 2016). Question A2 (multi code, prompted). Note (a) “Equity crowd funding platforms” in 2016
  24. 24. www.british-business-bank.co.uk @britishbbank 24 52% 42% 33% 30% 27% 20% 17% 6% 53% 31% 26% 21% 23% 21% 13% 5% Leasing/hire purchase Crowdfunding IF/Factoring Venture capitalists Equity P2P lending Business angels Mezzanine finance London Rest of UK Awareness of who to approach for crowdfunding and venture capital is higher in London than in many other regions Base = all SMEs (Not London n=1,750, London n=250 in 2018). Question A1 (multi code, prompted). Question A2 (multi code, prompted). Note credit cards, government/LA grants, trade finance and mezzanine finance not shown Aware of who to approach 88% 61% 74% 73% 56% 55% 47% 11% 89% 63% 67% 69% 52% 52% 40% 13% Leasing/hire purchase Equity Venture capitalists Crowdfunding IF/Factoring P2P lending Business angels Mezzanine finance Aware of finance type
  25. 25. www.british-business-bank.co.uk @britishbbank 25 Finance Usage and Application
  26. 26. www.british-business-bank.co.uk @britishbbank 26 More SMEs are using credit card finance and leasing/hire purchase than in 2017 Base = All SMEs (n=2000 in 2018) Question A6a_AA (multi code, prompted). All SMEs that sought finance in the last three years (n= 913 in 2018) A11b (multi code, unprompted). Those not shown less than 5% for both currently use or sought. Finance currently use and sought on last occasion 36% 26% 15% 12% 9% 6% 6% 2% 1% 10% 17% 20% 3% 15% 4% 1% 5% 6% Credit card finance Bank overdraft Leasing/hire purchase Loans from directors Bank loan Family/friend loan Equity from directors or friends or family Loans from another individual/organisation Something else % Currently use % Sought on last occasion More are using credit cards and loans from directors than in 2017 19% currently use loans or equity from directors, family or friends
  27. 27. www.british-business-bank.co.uk @britishbbank 27 Finance used in establishing business, if started in last two years – top mentions Personal savings are by far the most commonly used source of finance to establish a business Base = all SMEs who started business in last two years (n=67 in 2018). Question A3 (multi code, prompted). Those not shown 1% or less. 86% 14% 9% 8% 7% 6% 5% 2% Personal savings Credit card Director Loan Family/friends - loan Loan from bank/building society/finance company Family/friends - gift Government/Local government grant Mortgage/re-mortgage on home
  28. 28. www.british-business-bank.co.uk @britishbbank 28 Sought external finance in the previous three years - by employee size and sector Proportion seeking external finance in last three years is similar to 2017 41% 36% 54% 62% 71% All No employees Micro (1-9) Small (10-49) Medium (50-249) Base = all SMEs (n=2,000 in 2018). A6a (single code, prompted) 41% 52% 43% 39% 39% 38% All Production Construction Distribution Business services Other services 54% micro SMEs sought external finance in 2018, compared to 48% in 2017
  29. 29. www.british-business-bank.co.uk @britishbbank 29 Credit cards and commercial mortgages are most commonly sought from banks Base = all SMEs who sought each form of non-bank finance (n=194 for credit cards/n=46 for commercial mortgage/n=57 for invoice finance or factoring/n=41 for loans from another individual/organisation/n=280 for leasing or hire purchase. Data not shown for finance categories with a base below 30. Question A6c (single code, prompted). “Don’t know” excluded from chart. Seeking finance from bank vs. another source 1972 8866 42 35 22 11 25 51 65 76 Leasing or hire purchase Loans from another individual or organisation Invoice finance or factoring Commercial mortgage Credit cards % Another source% Bank % Don’t know/refused
  30. 30. www.british-business-bank.co.uk @britishbbank 30 Main reason for seeking finance 2016-2018 - last occasion in last three years Main reason for seeking finance is still for working capital or purchasing fixed assets Base = all SMEs that sought finance in the last 3 years (n=913 in 2018/n=932 in 2017/n=886 in 2016), all SMEs seeking finance for working capital (n=375 in 2018, n=388 in 2017) Question A13b (single code, prompted). 4% 1% 9% 33% 40% 3%3% 5% 34% 42% 3%4% 7% 36% 42% Start businessRefinancingExpansionPurchase fixed assets Working capital/cashflow 9% of SMEs sought external finance for expansion in 2018, compared to 5% in 2017 2016 2017 2018
  31. 31. www.british-business-bank.co.uk @britishbbank 31 Capital is most commonly sought for the general running of the business and to cover a short term gap in funds Most common reasons for seeking working capital 56% 37% 32% 24% 22% 16% 5% To continue trading / for general running of business To cover a short term gap until funds were received from customers For flexibility / convenience As a safety net just in case To fund general growth To cover a short term gap due to unexpected expense To fund export activity Base = all SMEs seeking finance for working capital (n=375 in 2018, n=388 in 2017) Question A14 (multi code, prompted). Codes 1% or less not shown except ‘don’t know’ (8%). All SMEs seeking finance for refinancing (n=34 in 2018), Question A15 (multi code, prompted). Most common reasons for seeking to re-finance were to keep business open or expand the business (39%), followed by an attractive offer of finance (27%)
  32. 32. www.british-business-bank.co.uk @britishbbank 32 Base = all SMEs that sought finance in the last 3 years (n=913 in 2018), n=266 no employees, n=647 employees. Question A28/A29 (single code, prompted) Amount of finance sought on last occasion by employee size 25 31 13 16 17 12 27 29 24 9 7 12 6 3 11 12 7 22 5 5 7 All SMEs No Employees Employees % Less than £5,000 % £5,000-£9,999 % £10,000-£24,999 % £25,000-£49,999 % £50,000-£99,999 % More than £100,000 % Don't know/Refused Majority of SMEs sought less than £25,000 finance on the last occasion 2017 median amount £10,000 £6,000 £20,000 2018 median amount £10,000 £8,000 £20,000
  33. 33. www.british-business-bank.co.uk @britishbbank 33 Researching finance types online now second most common step Base = all SMEs that sought finance in the last 3 years (n=913 in 2018), n=932 in 2017. Question A19 (single code, unprompted). Those not shown 1% or less. Who spoke to first when finance need identified 33% 14% 11% 6% 5% 4% 3% 3% 3% 2% 2% 2% Went directly to main bank Researched finance types on internet Spoke to supplier/dealer/manufacturer Sought advice from other businesses/friends Went to finance provider other than bank Spoke to accountant Spoke to finance adviser Spoke to board/directors/seniors Looked into finance options Used a credit card/overdraft/existing facilities Examined expenses/cash flow/company accounts Went directly to another bank 36% went directly to main bank in 2017 10% researched online in 2017 Sole traders (43%) and those trading over 10 years (39%) more likely to go directly to their bank
  34. 34. www.british-business-bank.co.uk @britishbbank 34 Banks and finance providers are the top influencer on the decision of who to approach Base = all SMEs who sought finance in the last three years (n=913 in 2018), Question A16 and Question A18 (multi code, unprompted). All who have sought more than one source of information on decision on which type of finance to apply for (n=146 in 2018), Question A17 (single code, unprompted). Sources of information that influenced decision 27% 24% 12% 7% 1% 19% 17% 20% 14% 8% 7% 11% 24% 29% 10% 4% 1% 21% Self Bank or finance provider Internet Advisor Government Other % Influenced decision on type of finance % Main influence on type of finance % Influenced decision on specific provider to approach
  35. 35. www.british-business-bank.co.uk @britishbbank 35 Number of providers considered 2016-2018 Four in ten businesses considered more than one provider in 2018 Base = all SMEs who sought finance in the last 3 years (n=913 in 2018 n=932 in 2017/n=886 in 2016). Question A22 (single code, unprompted) 55 56 60 15 11 12 14 14 12 3 5 5 8 7 6 2 2 1 3 5 3 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2018 2017 2016 % One % Two % Three % Four % Five+ % Don't know None % considering more than one provider 40% 38% 35%
  36. 36. www.british-business-bank.co.uk @britishbbank 36 Number of providers contacted 2012-2018 A majority of SMEs continue to contact one finance provider, although long-term trends suggest a positive shift to more providers being contacted Base = all SMEs that considered a provider of finance in the last 3 years* (n=848 in 2018 n=865 in 2017/n=886 in 2016/n=715 in 2015/n=325 in 2014/n=588 in 2012). Question A23 (single code, unprompted) 58 58 69 61 66 71 17 12 11 18 18 11 10 11 7 10 11 7 1 3 4 2 1 5 4 4 3 4 2 4 10 12 6 5 3 2 0 10 20 30 40 50 60 70 80 90 100 2018 2017 2016 2015 2014 2012 % One % Two % Three % Four % Five+ % Don't know/Refused/Other Mean = 1.6 Mean = 1.7 Mean = 1.5 Mean = 1.7 Mean = 1.5 Mean = 1.7
  37. 37. www.british-business-bank.co.uk @britishbbank 37 Having an existing relationship continues to be the most common reason for choosing providers - fewer say the decision relates to the likelihood of obtaining finance Base = all SMEs that sought external finance in the last 3 years (n=913 in 2018). Question A20 (multi code, unprompted). Those not shown less than 2%. Question A21 (single code, prompted) Reasons for choosing provider 41% 18% 13% 10% 9% 7% 5% 3% 3% 3% 2% 2% 2% 2% 2% Existing provider/already have relationship It was cheapest/most competitive in short or medium term Ease of application (e.g. little paper work) Trusted brand Most suitable/appropriate for need Long term costs/charges Only option available/limited choice Understanding/knowledge of our business Customer service Likelihood of successfully obtaining the finance Speed of obtaining finance Flexibility in drawing down and repaying money as needed Short term servicing costs of finance They were recommended Terms and conditions (e.g. security required) (7% in 2017) Having an existing provider continues to be the most common main reason (36%)
  38. 38. www.british-business-bank.co.uk @britishbbank 38 Base = all SMEs that contacted only one provider (n=469 in 2018, n=469). Question A26 (multi code, unprompted). Those not shown 1% or less. Reasons for only approaching one provider on last occasion – top mentions 49% 14% 12% 11% 7% 5% 4% 2% 2% Had an established relationship with that provider Cost/rates offered/best deal Too much hassle contacting more than one provider They were my only/most obvious option First one gave/had what I wanted Only one available Had type of finance I wanted Too little time/needed finance quickly High likelihood of successful application Having a longstanding relationship was also the most common reason last year (55%) Having an established relationship is the most common reason for contacting only one provider
  39. 39. www.british-business-bank.co.uk @britishbbank 39 39 50 58 46 3 4 Half of SMEs contact providers other than the ‘big five’ banks when seeking finance Base = all SMEs (n=2,000 in 2018); employers n=647, no employees n=266; Production n=188, Construction n=153, Distribution n=198, Business services n=252, Other services n=122. A25 (single code, unprompted). Note question changed since 2017 to include Santander in ‘big five’ banks. Was finance sought from any of the five largest UK banks 50%46% 4% Only sought finance from one of the five main UK banks Contacted other finance providers Employers No employees 38 51 53 50 33 60 46 46 47 59 2 3 1 3 8 Production Construction Distribution Business services Other services Other finance providersBanks only Don’t know Don’t know
  40. 40. www.british-business-bank.co.uk @britishbbank 40 Base = all SMEs that sought finance in the last 3 years (n= 913 in 2018 /n=932 in 2017/ n=886 in 2016/n= 715 in 2015/n=325 in 2014/n=588 in 2012). Question A30 (single code, prompted). *Note question wording changes since 2016 Whether successful in obtaining finance from first provider 2012-2018 82 81 84 71 79 72 3 5 6 10 8 5 2 2 1 5 3 4 9 8 7 9 6 13 2 3 1 5 3 4 2 3 1 1 2 2 2018 2017 2016 2015 2014 2012 % Offered all % Offered smaller amount % Decided not to continue/Rejected offer % Turned down % Other % Don't know/Refused Offered any finance 2016 = 90% 2015 = 86% 2014 = 90% 2012 = 81% 2017 = 86% 2018 = 85%* Around nine in ten get all or almost all the finance required from first provider
  41. 41. www.british-business-bank.co.uk @britishbbank 41 89% 85% 78% 83%82% 82%83% 87% 79%81% 89%89%86% 82%84% Medium (50- 249) Small (10-49)Micros (1-9)No employeesAll SMEs Success rates similar to 2017 overall, despite a significant fall for micro businesses Base = all SMEs that sought external finance in the last 3 years (n=913 in 2018, n=932 in 2017/n=886 in 2016; 2018: no employees n=266/micros n=324/small n=187/medium n=136). Question A30 (single code, prompted) Successful getting all finance – by size of business 2016-2018 2016 2017 2018
  42. 42. www.british-business-bank.co.uk @britishbbank 42 71% 87%85% 80%81%82% 75% 85% 74% 86%86% 81% 80% 86% 79% 91% 81%84% Other servicesBusiness services DistributionConstructionProductionAll SMEs SMEs in the distribution sector have become more successful in getting all finance since 2017 but other sectors remain consistent Base = all SMEs that sought external finance in the last 3 years (n=932 in 2017/n=886 in 2016/n=715 in 2015; 2017: production n=158/construction n=127/distribution n=199/ business services n=291/other services n=155). Question A30 (single code, prompted) Successful getting all finance – by sector of business 2016-2018 2016 2017 2018
  43. 43. www.british-business-bank.co.uk @britishbbank 43 Base = All SMEs with bank loan or commercial mortgage as most recent finance type (n=143 in 2018/ n=152 in 2016). A33 (Single code, prompted) Whether bank loan/mortgage obtained was for the same tenor period requested 2016 2018 Slight increase in SMEs granted bank loans/mortgages for the tenor period requested 83 93 7 3 6 4 3 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Yes No - longer period No - shorter period Don't know
  44. 44. www.british-business-bank.co.uk @britishbbank 44 Whether security was required for loan, types of security required and value as share of total loan 1% 1% 1% 2% 3% 13% 16% 23% 35% Equipment or vehicles Floating charge Intellectual property or other “knowledge assets” Stock or debtors Another type of security Mixed property Business property Other personal assets Directors or personal guarantee, or personal property For around a quarter of SMEs security was required for the loan, most commonly director or personal guarantee Base = all SMEs offered loan in their recent application (n=116 in 2018) Question A35b. All SMEs providing security for loan (n=43) Question A35c (multi-code, prompted). All SMEs providing security for loan (n=43), Question A35d (single code, prompted). 27% 73% Yes No Was security required? Types of security required The most common value for security as a percentage of the total loan provided was 25% or less (47%). Only 15% said it was 76%-100% of the value, and 8% over 100% of the value
  45. 45. www.british-business-bank.co.uk @britishbbank 45 Base = offered smaller amount/worse terms/turned down/didn’t accept finance (n= 87 in 2018). Question A32 (single code, prompted). What was done next if not offered full amount 30% 19% 14% 13% 12% 2% 8% 1% Give up/cancel plans Put plans for finance on hold Accepted the finance Talk to another provider Talk to them to try to negotiate a new or better finance facility with them Use an existing form of borrowing to replace some or all of the finance Other Don’t know Increase in those giving up or cancelling plans when not receiving all finance required 49% either gave up, cancelled plans or put plans for finance on hold
  46. 46. www.british-business-bank.co.uk @britishbbank 46 Base = all SMEs that sought finance in the last 3 years (n= 913 in 2018, n=932 in 2017/n=886 in 2016), Base = all for whom experience of raising finance was worse than expected (n=130 in 2018). Question A37 (single code, unprompted), A38 (multi code, unprompted). Top five answers shown only for why it was worse. 19%/17% 26%/13% 19%/15% 8 12 9 11 14 9 61 58 64 9 6 4 8 7 10 2 3 2 2018 2017 2016 % Significantly better % Slightly better % Matched expectations % Slightly worse % Significantly worse % Don't know/Refused 26% 20% 18% 14% 14% Application took too long Poor customer service Rejected or not accepted for finance Strict terms and conditions Too much paperwork Applications taking too long overtakes poor customer experience as the top reason for dissatisfaction Better/ worse Experience of raising finance vs. expectations 2016-2018 Why worse than expected 2018
  47. 47. www.british-business-bank.co.uk @britishbbank 47 Base = all SMEs that sought finance in the last 3 years from big five bank (n= 378 in 2018) or other provider (n=510 in 2018). Base = all for whom experience of raising finance was worse than expected and sought finance from big five bank (n=70 in 2018) or other provider (n=46 in 2018). Question A37 (single code, prompted), A38 (multi code, unprompted). 15%/21% 24%/13% 6 11 9 13 62 62 10 7 11 6 2 1 Big five banks only Other finance providers % Significantly better % Slightly better % Matched expectations % Slightly worse % Significantly worse % Don't know/Refused 31% 20% 20% 16% 13% 12% 12% 8% 7% 23% 23% 8% 6% 19% 15% 7% 14% 12% Application took too long Poor customer service Strict terms and conditions General difficulties obtaining finance Too much paperwork Rejected or not accepted for finance Lack of help support Provider didn't understand my business High cost Experience of raising finance from big five banks more likely than other finance providers not to meet expectations Better/ worse Experience of raising finance vs. expectations Big five banks vs. other providers Why worse than expected Other finance providersBig five banks only
  48. 48. www.british-business-bank.co.uk @britishbbank 48 18% of SMEs sought external advice, with half of these going to their accountant Base = all SMEs that sought finance in the last 3 years (n=913 in 2018, n=932 in 2017). A36 (multi code, unprompted) Sought external advice when applying for finance on last occasion 9% 3% 3% 2% 2% 1% 1% Accountant Solicitor Friends and family Finacial advisor Other Business mentor Don't know/refused 81% sought no advice (same as 2017)
  49. 49. www.british-business-bank.co.uk @britishbbank 49 22% 16% 18%18%18% 22% 27% 21% 15% 18% 15% 19% 17% 11% 13% Medium (50-249)Small (10-49)Micro (1-9)No employeesAll Proportion of SMEs using advice when seeking finance generally in line with 2017 but falls significantly for businesses with 10-49 employees Base = all SMEs that sought finance in the last 3 years (n=913 in 2018/n=932 in 2017/2016=886). A36 (multi code, unprompted). *Note this is a net variable generated from use of at least one source of advice on the last occasion. Sought external advice when applying for finance on last occasion* - 2016-2018 – by employee size 2016 2017 2018
  50. 50. www.british-business-bank.co.uk @britishbbank 50 24 23 21 30 3 % Very likely % Fairly likely % Not very likely % Not at all likely % Don't know/Refused/It depends Likelihood of seeking external advice if had difficulties obtaining finance More SMEs are ‘very likely’ to seek external advice if they needed finance in the future compared with 2017 Base = all SMEs (n=2,000 in 2018); Question B3ii (single code, prompted). Base: All SMEs likely to seek external advice for external finance in the future (n=956); Question D6 in 2017. Likely 47% Unlikely 50% Sole traders are less likely to seek external advice than SMEs with employees (52% unlikely vs. 46%) Half of those likely to seek advice say they are likely to pay for independent advice to help them obtain this finance (47%)
  51. 51. www.british-business-bank.co.uk @britishbbank 51 Perceptions of Raising Finance and Future Use
  52. 52. www.british-business-bank.co.uk @britishbbank 52 Confidence in ability to raise finance Improvement in confidence in assessing finance products offered by other providers Base = all SMEs (n=2,000 in 2018). Question A4 (single code, prompted). 30 19 20 39 35 34 12 14 14 8 15 12 8 13 15 2 3 5 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Assessing finance products offered by own bank Assessing finance products offered by other providers Applying for external finance % Very confident % Somewhat confident % Neither confident nor unconfident % Somewhat unconfident % Not at all confident % Don't know/Refused Confident 2017/2018 67%/69% 49%/54% 50%/54%
  53. 53. www.british-business-bank.co.uk @britishbbank 53 Base = all SMEs (n=2,000 in 2018). A5 (single code, prompted) Views on information provision, finance providers and banks 26 12 8 13 38 35 14 19 13 21 7 12 13 18 31 27 6 8 37 20 2 7 3 9 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% I know where to obtain information on the types of finance and specific providers available Providers give sufficient information about products for me to judge their suitability Banks are generally the only source of finance available to smaller businesses All banks are the same in the way they treat smaller businesses % Strongly agree % Tend to agree % Neither agree nor disagree % Tend to disagree % Strongly disagree % Don't know Around two-thirds are confident they know where to obtain information on the types of finance and specific providers available
  54. 54. www.british-business-bank.co.uk @britishbbank 54 Around three in ten SMEs still see moving banks as difficult Base = all SMEs (n=2,000 in 2018). Question A5b (single code, prompted) Ease of moving banks 17 39 11 21 7 4 0 10 20 30 40 50 60 70 80 90 100 Very easy Fairly easy % Neither/nor Fairly difficult Very difficult % Don't know/Refused Easy/ difficult 56%/29% Ease of moving business banking needs to another bank
  55. 55. www.british-business-bank.co.uk @britishbbank 55 8% 10% 13% 19% 21%22% 27% 32% 34% 42% 13%12% 32% 25% 28%28% 14% 27%27% 45% Poorcredit history Taketoolong Don'ttrust providers Economic conditions Providerseemed reluctanttolend Don'tknow wheretoget finance StrictT&Cs Tooexpensive Fearofrejection Avoidadditional debt Discouragement and reasons for not applying for finance Base = all SMEs (n=2,000 in 2018) Question B1 (single code prompted). Base = All who wanted finance in last 12 months but did not apply (n=102 in 2018, n=85 in 2017) Question B2 (multi code, prompted). Note B2 codes at 5% or below not shown. Question B3 (single code, prompted) Avoiding additional debt continues to be the most common reason for not applying for finance Avoiding additional debt continues to be the most common main reason (23%), followed by fear of rejection (10%) 2017 2018 6% reported they wanted to apply for external finance in the last 12 months but something stopped them (5% in 2017)
  56. 56. www.british-business-bank.co.uk @britishbbank 56 Forms of finance considering applying for in next 3 months Base = all SMEs (n=2,000 in 2018, n=2,070 in 2017). B3i (multi code, prompted). Note: Trust/charity funding, Invoice finance or factoring (asset based), commercial mortgage, equity finance and peer to peer lending all 1%. 4% 4% 3% 3% 2% 2% 2% 2% 2% Leasing/HP Government/Local government grants Bank overdraft Bank loan Credit card finance Loans from directors Loans from family/friend Private lending / finance company Crowd funding platform 83% do not expect to apply for any finance in the next three months Fewer SMEs are seeking credit card finance than in 2017 15% expect to apply for at least one external finance product in the next three months (4% in 2017)
  57. 57. www.british-business-bank.co.uk @britishbbank 57 Equity Finance
  58. 58. www.british-business-bank.co.uk @britishbbank 58 Three-quarters of those not using equity finance have not considered it Base = all SMEs aware of alternative finance forms and not using/sought (n=1,182 for equity finance in 2018, n=1,245 in 2017). Question A6d_A (multi code, prompted). Note (a) new code for 2018. Answer codes changed in 2018 questionnaire. Considering or have applied for equity finance 10% 18% You have considered equity finance but have not applied (a) You would consider applying for equity finance in future 75% of firms aware of, but not currently using equity, have neither considered nor would consider using it 9% 12% 13% 11% 17% 20% 17% 21% No employees Micro (1-9 employees) Small (10-49 employees) Medium (50-249 employees) % You have considered but have not applied % Would consider applying in future
  59. 59. www.british-business-bank.co.uk @britishbbank 59 Base = all SMEs that have sought equity finance in the last 3 years (n=96 in 2018). Question A7 (multi code, prompted) Where sought equity finance from 30% 12% 12% 12% 12% 9% 6% 16% A member of family or a friend Any other third party organisation or another business Within your business A Venture Capitalist/VC A Business Angel Another provider of equity finance A crowd funding platform Don't know/Refused Family members/friends most common source of equity, though over half used other sources
  60. 60. www.british-business-bank.co.uk @britishbbank 60 Base = All who applied for or have considered raising equity finance (n=403 in 2018). Question A9a (multi code, prompted). Note: different base to 2017. Barriers to equity finance 62% 58% 47% 43% 42% 6% 8% Reluctant to give up any control of the business Difficulties finding an investor who shares the firm’s aims and objectives Think the focus of investors is too short term Difficulties in putting together the business value proposition Deciding on its suitability for raising finance Something else None of these Giving up control and finding a suitable investor are the most common barriers
  61. 61. www.british-business-bank.co.uk @britishbbank 61 Views of those who've not considered equity finance 64% 42% 34% 32% 28% 27% 2% Our ownership structure means equity finance is not appropriate/relevant I don’t think the value of a share in our business would be attractive to investors I wouldn’t know where to start to look for investors / where to obtain investment I don’t really know anything about this form of finance I wouldn’t know how to put together a business value proposition I don’t have the time to look into this form of finance Something else Base = all SMEs that are aware of equity and did not seek equity (n=868 in 2018) Question A9b (multi code, prompted). Note: different base to 2017. Ownership structure is most common reason for not considering equity finance
  62. 62. www.british-business-bank.co.uk @britishbbank 62 Invoices and Late Payment
  63. 63. www.british-business-bank.co.uk @britishbbank 63 Giving and receiving trade credit Around a third of SMEs offer trade credit to customers or receive trade credit Base = all SMEs that give their customers trade credit (n=1,126 in 2018), all SMEs (n=2,000 in 2018). Question D1 (single code, prompted). 33% 66% 1% Don’t know/ Refused No Yes 34% 65% 1% Don’t know/ Refused No Yes Give trade credit to customers Receive trade credit
  64. 64. www.british-business-bank.co.uk @britishbbank 64 25 45 12 10 4 31 0% - All payments are on time Less than 20% 20-39% 40-59% 60-79% 80% or more Don't know What percentage of payments, if any, from your business customers are typically late (i.e. beyond the terms of the invoice)? One-quarter of firms with B2B sales report all payments are received on time Base: All SMEs with at least some B2B sales (n=1,283 in 2018) Question D8 (single code, prompted). New question in 2018.
  65. 65. www.british-business-bank.co.uk @britishbbank 65 At least two in five SMEs report average delay in payment of at least one month for invoices and trade credit Base = all SMEs reporting late payment of invoices by business customers (n=1,017 in 2018), Question D9a. All SMEs who offer trade credit (n=457 in 2018) Question D9b (single code, prompted). Not asked in 2017. Average delay in payment 20% 36% 34% 6% 3% 20% 30% 37% 6% 1% Less than two weeks Two weeks to one month Between one and three months Between three and six months Six months or more Normal invoice (among SMEs reporting late payment of invoices by business customers Trade credit (among all SMEs who offer trade credit)
  66. 66. www.british-business-bank.co.uk @britishbbank 66 Impact of late payments on the business Cash flow issues are the most commonly suffered consequence of late payments, being experienced by a third of SMEs reporting late payments Base: All SMEs reporting late payment of invoices by business customers (n=1,017) Question D10 (multi code, unprompted). New question in 2018. 2%3%3%4% 7% 29% Slower turnover growth I have been forced to use an overdraft facility Emotional impacts / stress / frustration Late paying suppliers I/we have spent lots of time chasing late payments My business has run into cash flow difficulties 33% 9% 5% 4% 4% 1% 1% Cash flow Resources Growth / profit Borrowing Personal Impact Staff Investment Top Mentions Mentions by category 51% report no impacts on the business of late payment
  67. 67. www.british-business-bank.co.uk @britishbbank 67 Actions taken to try and minimise the impact of late payments Chasing debtors by phone or email is by far the most common action taken in response to late payments, whilst a quarter take up preventative measures Base: All SMEs for whom a late payment has had an impact (n=495 in 2018) Question D11 (multi code, unprompted). New question in 2018. 36% 8% 6% 6% 5% 5% Constant reminding (phone / email) Suspended new business to late payers Writing to debtors Ask for upfront payment / deposits Better / improved payment plan / term Stricter policies / adjusting T&Cs or method of payment 41% 26% 22% 3% Debt recovery Preventative measures Credit reduction Outsourcing measures Top Mentions Mentions by category
  68. 68. www.british-business-bank.co.uk @britishbbank 68 Summing Up
  69. 69. www.british-business-bank.co.uk @britishbbank 69 • Growth of business turnover and expectations for future trading conditions remain broadly in line with those seen in 2017 • There is a small but significant jump in the percentage of SMEs aiming to grow substantially in 2019 • Compared with 2017, more firms report leaving the EU has negatively impacted growth and sales expectations and also anticipate difficulties in obtaining debt and equity • A majority (62%) say that Brexit has not and do not expect it to have an effect on sales in the next 12 months • Around a third (32%) report that Brexit has affected or will affect sales, and of these, 80% report a negative effect Summary - 1
  70. 70. www.british-business-bank.co.uk @britishbbank 70 • Encouragingly, awareness of almost all forms of finance, and specific providers, has increased since 2017 • More SMEs are using credit card finance and loans from directors than in 2017, suggesting that personal finance continues to play a strong role in SMEs financial repertoire • The proportion of firms seeking external finance are generally in line with those seen in 2017, although there is an increase in the number of micro organisations doing so Summary - 2
  71. 71. www.british-business-bank.co.uk @britishbbank 71 • A majority of SMEs continue to consider one finance provider, although long-term trends do suggest some positive shifts towards SMEs considering a greater number of providers • Encouragingly, more SMEs say they are very likely to seek external advice if they experience difficulties obtaining finance than in 2017 though less than half, of these, are likely to pay for it • Among those aware of equity finance, there is a significant increase in the proportion of SMEs who have considered it but not applied for it • Three top barriers to equity are: reluctance to give up control of the firm, difficulties finding an investor who shares the firm’s aims and objectives, and the perceived short-term focus of investors Summary - 3
  72. 72. www.british-business-bank.co.uk @britishbbank 72 • Confidence in the ability to raise finance, as well as views on banks and finance in general, generally remain in line with 2017 levels • There appears to be a decline in distrust towards providers as a reason for not applying for finance, while debt aversion remains the top reason for discouragement • SMEs with B2B sales report just 25% of payments are received on time. Firms report two in five late payments received are one month or more in arrears Summary - 4
  73. 73. www.british-business-bank.co.uk @britishbbank 73 • Whilst over half report no negative impact on the business of late payments, the most common is cash flow issues (reported by a third of SMEs) • In terms of actions taken to minimise the impact of later payments, debt recovery appears to take precedence over preventative measures (41% and 26% respectively among SMEs for whom a late payment has had an impact) Summary - 5
  74. 74. www.british-business-bank.co.uk @britishbbank No representation, express or implied, is made by British Business Bank plc and its subsidiaries as to the completeness or accuracy of any facts or opinions contained in this presentation and recipients should seek their own independent legal, financial, tax, accounting or regulatory advice before making any decision based on the information contained herein. No part of this presentation should be published, reproduced, distributed or otherwise made available in whole or in part in any jurisdiction where to do so would be unlawful. British Business Bank plc is a public limited company registered in England and Wales registration number 08616013, registered office at Steel City House, West Street, Sheffield, S1 2GQ. As the holding company of the group operating under the trading name of British Business Bank, it is a development bank wholly owned by HM Government which is not authorised or regulated by the Prudential Regulation Authority (PRA) or the Financial Conduct Authority (FCA). It operates under its own trading name through a number of subsidiaries, one of which is authorised and regulated by the FCA. British Business Bank plc and its subsidiary entities are not banking institutions and do not operate as such. A complete legal structure chart for British Business Bank plc and its subsidiaries can be found at www.british-business-bank.co.uk.

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