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Finance for Small and Medium-Sized Enterprises: A Report on the 2004 UK Survey of SME Finances 6. PROVIDERS OF FINANCE In this section w e look at the main providers of financial services to SMEs and the characteristics of the relationship with this provider. Information on the main provider was collected by asking businesses which bank or financial institution they considered to be their main provider of finance. Firstly, we look at the types of services and finances supplied by this main provider. Table 6. 1: Functions of the Main Provider of Finance FUNCTION PERCENTAGE ERROR MARGIN ± Provides Current Account N p = 3,523,873; N = 2,448 99.5% 0.4% Provides Overdraft N p = 1,919,574; N = 1,650 99.2% 0.6% Provides Deposit Accounts N p = 1,500,809; N = 1,410 90.4% 3.3% Provides Loans N p = 881,947; N = 955 71.5% 7.4% Provides Asset Finance N p = 975,983; N = 1,193 Provides Asset-Based Finance 21.9% 5.5% N p = 109,418; N = 198 43.0% 19.6% Provides Credit Cards N p = 2,005,997; N = 1,527 66.1% 5.3% Base: All SMEs N P = 3,625,416 (Unweighted N=2,500) This table reveals that the main provider supplies: • Current accounts to over 99% of SMEs using current accounts. • Overdrafts to 99% of SMEs using overdrafts. • Deposit accounts to 90% of SMEs using deposits. • Loans to 72% of SMEs using loans. • Asset finance to 22% of SMEs using asset finance. • Asset-based finance to 43% of SMEs using asset-based finance. • Credit cards to 66% of SMEs using credit cards. Commen t These data highlight the three distinct markets which were identified in Competition Commission (2002): liquidity management services (current accounts, overdrafts and short-term deposits); general purpose business loans; and other types of debt. Indeed, the main provider’s principal function is the supply of liquidity management services (in 90% or more of cases). There is a sharp drop down to instances where the main provider is the supplier of loans (72%), and a further, distinct, decline to instances 71
Finance for Small and Medium-Sized Enterprises: A Report on the 2004 UK Survey of SME Finances where it supplies other forms of debt. Analysis of the number of different financial products, supplied by the main provider, is given later in this section. Market shares Now we turn to an analysis of market shares based on data provided by businesses about their main provider of finance. of marke dicates that the market we are looking at here is, principally, for liquidity nt services. 42 In the following charts we report the degree t concentration among the largest four providers. The previous analysis in manageme In the following chart we look at the market shares of the top four providers in the UK Figure 6.1: Market Shares of Largest Four Providers (UK) 22% Top Four Providers Other Providers Base: All SMEs N P = 3,625,416 (Unweighted N=2,500) This chart indicates that • The largest four providers account for almost 80% of the market. In addition (not reported in Figure 6.1) • The largest provider is the main provider to 1 in 4 SMEs. • The two largest providers account for 42% of the market. In comparison, Cruickshank (2000), using bank data on the value of loans and overdrafts, estimated that the top four banks account for 83% of the market. Our figure of 78% is indicative of a slight fall in market concentration. 43 42 In contra st, previous analyses of market share have used bank data (see e.g., Cruickshank, 2000) 43 Whilst our figure is (statistically) significantly smaller than Cruickshank’s figure, it would be incorrect to infer that the top four market share has fallen 5 points, due to the different methods of calculating market shares. 78% 72
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