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Finance for Small and Medium-Sized Enterprises: A Report on the 2004 UK Survey of SME Finances 4. NEW FINANCE SOUGHT IN THE LAST 3 YEARS e looked at the stock of financial products being used by SMEs in the last 3 years. In this sect at bu hic t financ ea re ich ine nance applied for it unsuccessfully, in the last 3 years. This asure gives an indication of the demand for new finance. In this ntext, the term nance encom asses overdrafts, grants, term mortgages), asset finance, asset-based finance and equity finance. 31 In the previous section w ion we look sinesses w h have sough new e in the last 3 y rs. These a businesses wh have obta d new fi , or me co fi p loans (including In Table A4.1 (Appendix to Section 4) we report the percent age of businesses seeking new finance. The resu lts show that: • 44% of SMEs sough t new finance in the last 3 years. This percentage varies from 36% (no employees) to 76% (50-249 employees) • 31% of businesses in Health and Social Work (SIC N) sought new finance versus 62% in Hotels and Restaurants (SIC H). • Sole traders are significantly less likely to have sought new finance than either partnerships or companies (37% versus around 57% ). • Majority female owned businesses are no less likely than majority male owned businesses to have sought new finance. • On the other hand, there is some evidence that ethnic minority owned businesses are more likely to have sought new finance than white-owned businesses (61% versus 43%). • Unsurprisingly, start-ups are more likely to have sought new finance than established businesses (69% versus 42%). • 62% of high growth businesses sought new finance versus 41% of slower growing businesses. Commen t SBS (2003) reports that 16% of businesses sought new finance in the previous 12 months. Extrapolating this figure over a three year period gives a similar result to our finding (48%). In addition, the SBS report showed that start-up and high growth businesses had an above average likelihood of seeking finance. In another study, Cosh and Hughes (2003) found that about 40% of businesses in manufacturing and business services had sought new finance in the previous two years. By implication, more than a half of SMEs did not seek new finance. This could reflect constraints on the supply of finance or a lack of demand. If supply is the issue then this suggests that businesses are having problems accessing finance. A lack of demand, on the other hand, suggests that firms’ internal resources are sufficient for their growth aspirations. 32 In Table A4.2 we report the percentage of businesses which did not seek finance because they had no need for it. 31 We are unable to include friends and family finance in this analysis, since we asked whether businesses use this type of finance, but not when it was obtained. 32 This is compatible with the firm having limited growth aspirations where the amount of internal capital is small. 59
Finance for Small and Medium-Sized Enterprises: A Report on the 2004 UK Survey of SME Finances The key result of Table A4.2 is that, among businesses which did not seek new finance: • 95% report that they did not need new finance. The percentage reporting lack of demand is consistently high across all types of SME, varying from: • 88% in businesses wi th 50-249 employees to 98% in high-growth businesses. These findings strongly suggest that an absence of demand is the reason for not seeking new finance. Similar findings are reported in Cosh and Hughes (2003). In their sample of manufactur ing and business service firms 85% did not seek new finance because their internal cashflows were sufficient. Amounts of new finance sought In Table A4.3 (Appendix to Section 4) we report the amounts of new finance sought by businesses in the last 3 years. These results show that: • The average amount of new finance sought is just under £82,000. • This amount increases from £29,000 (businesses with no employees) to just over £1 million (50-249 employees). • Limited companies sought just under £200,000. This amount is significantly higher than the amounts sought by other legal forms of business. • There are no statistically significant differences in the amounts sought by female-owned versus male-owned businesses. • However, ethnic-minority owned businesses sought just over £28,000 on average. This is significantly less than the amount sought by white-owned businesses (£85,000). ght by age 33 • There are no significant differences in the amounts of finance sou of business or growth rates. Types of new finance sought In the following table we look at the types of new finance sought. 33 Although part of this difference may be due to differences in other business characteristics, these differences are not the entire explanation for the lower amounts of finance sought by ethnic minority businesses. Indeed, a regression of the amount of finance sought on an indicator for ethnic minority owned businesses, and controls for firm size, industry, region and legal status, still found that ethnic minority businesses sought significantly less (about £55,000 less) than white-owned businesses. 60
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