Finance for Small and Medium-Sized Enterprises - DTI Home Page

Finance for Small and Medium-Sized Enterprises: A Report on the 2004 UK Survey of SME Finances
For overdrafts:
• The median margin is about 2 points over Base.
• This figure is closer to 1 point over Base for medium-sized firms (50-249
employees).
• The bulk of margins (within the box) lie between 0 and 2 points over Base.
• There are very few instances of margins
exceeding 4-5 points over Base.
For term loans:
• The median margin is about 2 points over Base.
• The bulk of margins for businesses with no employees lie between
0 and 3
points over Base.
• For businesses with 10-49
employees, most margins lie between 1.5 and 2.5
points over Base.
• There are very few instances
of margins exceeding 4-6 points over Base.
Table A8.3 also shows that:
• Less than 1 in 40 overdrafts carry a premium of more than 5.5 points.
• This figure is closer to 1 in 20 for term loans.
Comment
Bank of England (2004) reports an average margin of 2 percentage points at the end
of 2003. Also, the narrow spread of margins, in our data, is compatible with evidence
on margins reported in Cruickshank (2000). 59
In the Appendix to Section 8 (Table A8.4) we look at average margins over different
types of business. The key results from this table are that:
• Both overdrafts and term loans carry an average margin of 2 percentage
points.
• Margins on overdrafts tend to diminish with firm size.
• Very long financial relationships tend to reduce margins relative to
intermediate relationships.
• Majority female-owned businesses pay significantly higher margins on term
loans than male-owned businesses (2.9 versus 1.9 percentage points over
Base). This result is robust when controlling for business and loan
characteristics. 60
• Ethnic-minority owned businesses pay significantly lower margins on term
loans than white-owned businesses (1.2 versus 2.3 percentage points over
Base). Again, this result is robust when controlling for business and loan
characteristics.
59 The Box and Whisker plots indicate that there are a handful of instances, for both term loans and
overdrafts, of reported margins in double figures. It is possible that these instances reflect reporting
error.
60 Regressing loan margins on a loan default indicator, the size of the loan, the length of relationship
with the main bank, business, an indicator for variable rate loans, as well as other business and regional
characteristics, indicates that female owned businesses pay a 1.1 percentage point premium relative to
male owned businesses.
104